When to Value Assets in Divorce
Published in Chicago Lawyer Magazine, June 2009
By Daniel Stefani
In a dissolution of marriage, the Court identifies the parties’ assets and liabilities, classifies them and values them. In today’s volatile economic times, using the appropriate valuation date is more important than ever. In Illinois, the Illinois Marriage and Dissolution of Marriage Act directs the Court to value assets and liabilities on a date “as close to the trial date as practicable.” The Illinois case law interpreted this to mean anywhere from the beginning of trial back to a date nine months before the trial date. Typically, with complex business valuation issues, the underlying financial information used to complete an expert business valuation report lags well behind the trial date and therefore, the valuation date is several months before the ultimate trial to allow for the completion of expert reports. At trial, upon good cause shown, typically the Court will allow evidence of intervening events that effect value. This is not perfect and often results in the Court having to use obsolete values.
Addition problems arise when after the close of proofs, it takes several months for submission of closing arguments and the ultimate rendering of a written decision by a trial Court. The problem is especially acute in Cook and other collar counties where there are too many cases and not enough judges.
The result of all of this is often times Courts are rendering judgments based on valuations of assets that are several months, and in certain instances over a year old. As it relates to liquid assets such as brokerage accounts and retirement accounts, litigants have at their disposal post-trial motions that can allow for the Court to make the appropriate adjustments. As it relates to real estate, the Court has at its disposal the ability to simply sell the asset and take the valuation questions out of play. As it relates to complex business evaluations, however, there is very little the Court can do other than to render its opinion as quickly as possible.
Under the current statutory scheme, there are no deadlines for the Court to render its decision within any timeframe. As stated above, unfortunately in complex divorce cases, it sometimes takes close to a year, if not longer, to issue opinions in divorce Courts which only delays the termination of marriage which many people need just to begin the healing process, let alone the unfortunate process of post-decree litigation and appeals. Issuing an opinion with the appropriate valuation date is a challenge when opinions take so long to complete. With today’s technology, most divorce attorneys submit to the Court written closings and proposed judgements, as well as a computer disk containing those documents, so the Court can work with the information on a more expedited bases. Some have suggested that a deadline of thirty days from the submission of written closing and proposed judgements is an appropriate deadline with a one-time extension for good cause shown for rendering the opinion.
Other jurisdictions such as California have taken a much more hard line approach. For example, Article VI of the California Constitution and Rule 11.7 from the Los Angeles Superior Court Rules provide that a judgement/opinion must be issued within ninety days of a case being submitted to the Court and if a judge fails to issue a timely opinion, that judge is barred from receiving his or her paycheck!
Another inherent problem with valuation dates is when a Court has issued a bifurcated judgement. A bifurcated judgement is where the Court dissolves the bond of marriage on a certain date but reserves issues of valuation and allocation of assets and liabilities for a future date. Courts rarely order such bifurcation. However, parties more routinely agree to such a situation which is approved by the Court. Under a recent decision issued on February 17, 2009 in the case of In re Marriage of Awan v. Parveen, No. 3-07-0068, the Third District ruled that all assets and liabilities were required to be valued at the time of the bifurcation and entry of the Judgement for Dissolution of Marriage, even though the Judgement was entered approximately two years before the remaining issues of valuation of property, etc. were dealt with. That is consistent with the prior case law but it puts the Court in a difficult position and requires the Court to create a legal fiction in certain circumstances regarding valuations, which is especially troubling in such volatile economic times. In fact, certain assets in such a situation may no longer be in existence, but the Court is required to divide them as if they did exist. The Court should have some discretion to deal with these issues if there is a significant difference in values or the asset simply does not exist or new assets exist.
Clearly, the issue of value is a moving target and will always be an imperfect science. However, the more steps that can be taken to compress the time between the date of value and the ultimate opinion by a Court will minimize the inherent inequities in such a system.