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Property DivisionAssets To be Valued Now, Not Later

August 15, 2006

In a divorce, different types of assets are valued at different times.   For instance, passively held assets, like pensions, are generally valued as of the date of trial. Assets actively managed by one of the parties are generally valued as of the date of commencement of the action for divorce. In part, this prevents a litigant from sabotaging an asset solely to avoid equitable distribution.  

In a decision last week, the Appellate Division, First Department ruled that an asset purchased for speculative purposes, is not to be valued “if, as and when” the asset is eventually sold at some time in the future, but at date consistent with Domestic Relations Law § 236(B)(4)(b), which requires the court to set a valuation date somewhere between the date of commencement of the action and the date of trial,

In Pickard v. Pickard, the parties had a 25% interest in KP Holdings, a New York limited liability company which at the time of the action owned 11 occupied rent-controlled or rent-stabilized apartments in three buildings on the East Side of Manhattan. These apartments would become far more valuable after they were vacated by their present tenants and became free of the rent regulations.

The trial court rejected defendant’s expert’s valuation of defendant’s 25% interest in KP Holdings at $55,000, since defendant’s expert acknowledged that the apartments could easily be worth six to seven million dollars when the rent controlled apartments became unregulated and more salable.

Rather than valuing the asset at a future date when the assets would be eventually sold, the Appellate Division opined that the asset was to be valued for equitable distribution purposes at a present, not a future date. In reaching this conclusion, the Court stated that:

The present value of this asset is no more speculative than that of any other asset with limited marketability; it may be properly determined by standard valuation techniques. Rather than rendering the asset’s value too speculative to determine, the marketability limitation simply creates the need to apply discounting factors to the future value – exactly the procedure the expert here employed. He properly considered not only the projected sale prices some distance in the future, but then applied discounts to those projected prices to account for such factors as the likely length of time before the apartments will become available for sale, and the expected costs of ownership of the properties in the intervening years.

Another reason to presently value the assets, according to the Court, was that it would fully resolve the issues between the parties. If the proceeds of the parties’ assets were to be distributed between the parties as the apartments are sold sometime in the future, there could be too many possible disputes between the parties, requiring court intervention “such as the extent to which defendant may claim reimbursement for capital contributions to maintain the apartments until they are sold. Distribution of assets should not be left unresolved at the time of the divorce where it can be effectuated at that time, as can the parties’ interest in KP Holdings.”

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