The Importance of Dates & Fluctuations in Divorce

The Importance of Dates & Fluctuations in Divorce by Sandy Balick

{4:42 minutes to read} Mediation empowers divorcing spouses to define their own standards of fairness and helps them to make maximum use of the considerable freedom New York law allows in shaping their own settlements.

This entry focuses on selection of appropriate valuation dates for financial accounts, including bank and retirement accounts.

As noted in an earlier blog in this series, the law views marriage as an economic partnership, and the assets (as well as liabilities) to be divided in equitable distribution are (with a few exclusions) those acquired from the wedding date until the initiation of divorce proceedings (referred to as the “commencement date”).

But where a Separation Agreement is entered into prior to a commencement date, as is frequently the case with mediated settlements, the Agreement date will usually serve as a cut-off date for the accumulation of marital assets.

When financial accounts are to be divided between spouses, what date is used to value these accounts? 

The short answer is that there is flexibility on dates, but fluctuations between the date of valuation and the date of actual division need to be accounted for. Court rules governing valuation dates are less flexible and may be subject to expensive proof. If litigated, courts determine the percentage distribution of marital assets. In mediation, couples make this determination (e.g., 50%/50%, 60%/40%, etc.).

Where financial accounts are concerned, this determination must ultimately be tied to a particular valuation date. Reference to an account statement for this purpose will conveniently define the amount of distribution agreed to.

Frequently, though, the actual division of the accounts between the spouses happens many months after the Agreement’s entered into. This is especially the case where it’s necessary to await the judgment of divorce (even an uncontested divorce may take several months to come through).

While certain accounts can be divided and distributed between spouses by the Separation Agreement date, this is not always possible. This is especially the case where retirement assets must await the eventual Judgment of Divorce and/or the issuance by the court of a special order frequently referred to as a QDRO. The QDRO may be necessary to maintain the tax-deferred attributes and avoidance of early distribution penalties on these accounts.

Whatever the nature of the account is, if it must await entry of the divorce judgment and/or QDRO, there will likely be fluctuations between the valuation date agreed upon and the actual distribution date (both of which are post-judgment events). 

Active vs Passive Assets

While the courts have freedom to set any date between commencement and the time of trial as the appropriate valuation date, they are frequently guided by a determination of whether the accounts in question are active or passive assets.

Actively managed accounts, for instance, are valued as of the commencement date. Passive accounts on the other hand—investments left in accounts to rise and fall as markets fluctuate—are valued as of the time of trial. The active/passive test may also apply to assets other than financial accounts.

Left to litigation, determining a valuation date for financial accounts alone can be a fraught and expensive exercise given the necessity for litigants to address active/passive distinction, which is not always clear or fair in the particular case.

Mediators or advising attorneys are helpful in assisting couples to a voluntary resolution of what can be a confusing area of equitable distribution. Follow-through is critical: In exercising their broad freedom to set their own terms and dates, settling spouses want to be certain that their ultimate Settlement Agreement reflects a clear identification of the property to be divided and the agreed upon appropriate values and division dates.

Sanford (Sandy) Balick, Attorney & Mediator, NY Sandy Balick signature
Sanford E. Balick, Esq.
Founder & Principal Mediator
Consensus Point Mediation, LLC.

Phone: (646) 340-3434
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