Choosing a Valuation Date of Marital Assets in Dissolution of Marriage Cases: Perlmutter and its Permutations
- Florida’s statutory equitable distribution scheme provides that in achieving an equitable distribution of marital assets in dissolution of marriage cases, the court must “identify, value, and distribute those assets.”1 I t is axiomatic that the valuation of marital assets cannot be effected without first choosing the appropriate valuation date for those assets. While at first blush the question of choosing a valuation date appears simple and mechanistic, commentators have aptly described this issue as “one of the most perplexing and difficult problems created by the equitable distribution law,”2 a nd “of the utmost importance since in complex, ‘megabuck’ urban divorce contests, protracted pretrial proceedings and other calendar delays often produce a significant interval between the commencement of an action and the time of trial. During the interim, property values might not — and probably would not — remain constant.”3 W hile the Florida statute addresses and ostensibly answers the question of choosing the appropriate valuation date of marital assets, the statute itself is perfunctory and offers little in the way of specific guidelines.4
This article will trace the history of Florida law as to this issue and will provide a road map for practical application of the law in a typical dissolution action. As with many marital and family law issues, the question of choice of valuation dates is complex and nuanced when examined in detail. A thorough analysis of this issue may provide the practitioner a prime opportunity to effectively practice the art of advocacy.
Florida’s valuation statute has changed substantially through the years. Prior to enactment of F.S. §61.075, choosing a valuation date of assets in dissolution actions was determined on a case-by-case basis, depending upon the facts and circumstances thereof, and there was no presumption that one date should be used as opposed to another. Perlmutter v. Perlmutter,
523 So. 2d 594 (Fla. 4th DCA 1987). In 1988, the equitable distribution statute was enacted and became effective October 1 of that year. Section 61.075(6)(Supp.1988) provided that the valuation date of marital assets should be the earliest of the date of a valid separation agreement or the date of the petition, unless the trial judge determined another date was just and equitable under the circumstances.
Section 61.075(6) was then substantially amended in 1994. The 1994, and current, version of the statute provides:
The cut-off date for determining assets and liabilities to be identified or classified as marital assets and liabilities is the earliest of the date the parties enter into a valid separation agreement, such other date as may be expressly established by such agreement, or the date of the filing of a petition for dissolution of marriage. The date for determining value of assets and the amount of liabilities identified or classified as marital is the date or dates as the judge determines is just and equitable under the circumstances. Different assets may be valued as of different dates, as, in the judge’s discretion, the circumstances require.
Thus, by the terms of the current statute, there is no presumption of a choice of dates for valuation of marital assets. The valuation statute has effectively come full circle, and the law regarding the choice of valuation dates is now essentially governed by the case law preceding the adoption of the statute.5 T he choice of dates to value marital assets is now largely up to the trial judge’s discretion.6 A s amplified by the Fourth District in Perlmutter, a determination of appropriate dates for valuation is to be determined on a case-by-case basis.
Perlmutter, thus, remains the polestar decision in Florida regarding the question of the determination of valuation dates and the methodology to be used in determining the correct valuation date. In Perlmutter, the husband’s expert valued the parties’ painting companies at approximately $3 million at the time of the petition in 1981 and over $5.7 million at the time of trial; whereas, the wife’s expert valued the companies at $4.2 million at the time of the petition and $7.2 million at the time of trial in 1983. The court noted that regardless of which party’s figures it accepted, there was a vast difference in the valuations of the business, equating to over $2 million between the date suit was filed and the date of trial, some three years later. The Fourth District, thus, held that the date of the dissolution trial, rather than the date of filing of the action, was the appropriate date for valuation of the marital assets for equitable distribution purposes. In determining that the trial date was the appropriate valuation date of the parties businesses, the court aligned itself with Wegman v. Wegman, 509 N.Y.S.2d 342 (N.Y. Ct. App. 1986), amended, 512 N.Y.S.2d 410 (N.Y. App. Div. 1987). Though the court in Perlmutter did not expressly state the justification for its opinion that the trial date was the appropriate valuation date there, the Wegman factors justifying use of the trial date, including a long period of separation between the separation date and the trial date, a significant increase in value, and no evidence that the increase in evaluation was solely attributable to one party, justified use of the trial date as the valuation date.
The principles espoused in Wegman have become the touchstone of analysis of this issue in Florida and across the country. There, the court concluded from its study that there are examples of varied circumstances that would dictate one date over another, concluding that, in many cases, valuation of marital assets as of the day as close to the time of trial as practicable will result in an award which is fair to both parties. In Wegman, there was a three- and two-year time period between the day of petition and the day of trial. The court noted that during a delay of that kind, many assets, particularly businesses, may experience fluctuations that might dramatically change a distribution, and that under such circumstances, the valuation of the assets close to the time of trial may ensure that each spouse receive a fair share of the family assets accumulated during the marriage relationship. The court pointed out, however, that in other cases, circumstances may exist which would justify the use of a valuation date closer to the commencement of the action, including where a sharp increase in the value of the marital assets was due solely to the efforts of an owner spouse, or where there was a dramatic reduction of value due to dissipation or wasteful conduct of the owner spouse. The court specifically noted that “these examples, of course, are not exclusive . ”7 T he Wegman court concluded that the concept of “economic partnership” rests upon the existence of an underlying and continuing marital relationship and that, in the last analysis, the date chosen must be tailored to the particular facts involved in each case and must be reflective of the legislative mandate to provide for the equitable distribution of the assets of the marital partnership.
Essentially, courts are faced with three different valuation dates in valuing marital property including the separation date, the petition date, and the trial date. In choosing between those dates, courts have utilized the reasoning in Wegman and Perlmutter, and have examined whether one party’s actions were responsible for the increase and decrease in value of, or even the existence of, the asset in question subsequent to the date of separation or date of petition. In those cases, use of the separation or petition date is deemed appropriate because the change in value is a result of one party’s actions, and thus, the valuation date should be the earlier date so as to reflect that the party whose actions caused the increase or decrease in value receives the benefit of, or detriment of, his or her actions, by solely receiving the difference in value of the subject asset between the earlier date and the trial date. Conversely, when there is a long period of time between the petition date and the trial date, and the change in value is as a result of passive, or market forces, rather than the particular actions of a party, the increase or decrease in value should be equally allocated between the parties, thus, mandating use of the trial date as the valuation date.
A review of the case law subsequent to Perlmutter is instructive on this point, and for purposes of clarification, will be divided into three sections reflecting the three dates used by the various courts in determining the appropriate valuation date for marital assets.
The Separation Date
Courts in Florida and other jurisdictions have not hesitated to use the separation date as the appropriate valuation date when one party’s efforts are solely or primarily responsible for the increase in value between the separation date and the trial date of the asset in question. For example, in Norwood v. Anapol-Norwood, 931 So. 2d 951 (Fla. 3d DCA 2006), the Third District agreed with the trial court’s holding that when the increase in value of property or continued ownership of property is solely due to the work or efforts of the owner spouse, the use of separation date is mandated. There, the undisputed proofs were that the entire upkeep, maintenance, improvement, repair, and, in fact, continued ownership of the former marital property after the separation of the parties was solely as a result of the efforts and contributions of the wife. In Anapol, the wife alone contributed to the deficit between income and expenses as regards the home, of over $1,500 per month during the separation, and further contributed $25,000 for expenses, repairs, renovations, taxes, and insurance after the separation. Of note, the court in Anapol pointed out that the issue of characterization of an asset as marital is different from the question of valuation of that asset. The court specifically noted that
after appropriately fixing the characterization of the marital home as a marital asset subject to equitable distribution on the date of filing of the complaint as required by section 61.075(6), Florida Statutes (2003), the trial court did not err in determining as a matter of the discretion conferred by section 61.075(6) the (much lower) valuation of the property at the earlier date of separation.8
In Nelson v. Nelson, 795 So. 2d 977 (Fla. 5th DCA 2001), the trial court’s use of a date between the separation and the trial was affirmed when the value of the subject corporations decreased dramatically between the separation and the trial, and significant tracing problems precluded use of another date for valuation of the corporations. The appellate court noted that “in view of this tangle of financial transactions and [the husband’s] inability to make sense out of the disarray, we do not find the trial court abused its discretion in backing up to a date after the parties had separated and before most of the transference of assets commenced.”9 S imilarly, in O’Neil v. Drummond, 824 So. 2d 1032 (Fla. 1st DCA 2002), the appellate court ruled that the trial court did not err when it valued marital and nonmarital portions of various investment accounts, pension plans, and 401(k) plans, as of the parties’ separation date. Jurisdictions across the country have approved trial court decrees that anchor the value of marital property to the date of separation or specifically recognize that temporal point as a benchmark date.10
The Petition Date
The petition date is typically deemed the appropriate valuation date when one party’s efforts have caused a significant increase or decrease in value of the subject asset. Thus, by using the petition date, the increase or decrease in value of the asset between the petition date and trial inures to the party responsible for the increase. For example, in Catalfumo v. Catalfumo, 704 So. 2d 1095 (Fla. 4th DCA 1997), the petition date was deemed proper because the record evidenced that the increase in the value of the husband’s businesses resulted from his individual efforts after the parties separated and after the filing of the petition for dissolution. Similarly, in Parry v. Parry, 933 So. 2d 9 (Fla. 2d DCA 2006), the appreciation in value of the husband’s stock resulted, at least in part, from the husband’s work as a senior officer of the company. The court, thus, valued the husband’s stock on the date of the petition, rather than on the date of trial.11
In Temple v. Temple, 519 So. 2d 1054 (Fla. 4th DCA 1988), the parties were separated for at least four years prior to filing the petition for dissolution. The appellate court affirmed the trial court’s selection of the date of the petition for dissolution of marriage, rather than the date of separation, as the date for determining the marital assets, noting the stock would not have been a marital asset had either party filed for dissolution within a year or two of their separation, and that the time of the acquisition following separation is a factor that the trial court may reasonably take into consideration. In Leon v. Leon, 652 So. 2d 1164 (Fla. 4th DCA 1995), the court affirmed the trial court’s use of the commencement of the first dissolution proceeding as the appropriate valuation date.
The Trial Date
The rationale of use of the trial date as the valuation date is that in cases when an asset has passively increased or decreased in value during the dissolution case, through, for example, market forces or inflation, the increase or decrease in value should be shared equally between the parties. For example, in White v. White, 717 So. 2d 89 (Fla. 3d DCA 1998), the value of the husband’s retirement accounts increased by almost $200,000 in the 18 months between the time the petition and the trial. The increase in value was purely passive appreciation as a result of market factors. The court, therefore, determined that the trial date was the appropriate valuation date.
In Byers v. Byers, 910 So. 2d 336 (Fla. 4th DCA 2005), the trial court was deemed to have abused its discretion in valuing husband’s 401(k) account as of the date of filing of the petition instead of the date of the final hearing, when the account passively appreciated during the two-year period from the time of filing of the petition to the final hearing, and the trial court gave no explanation as to why it settled on the date of filing as valuation date. In Hicks v. Hicks, 580 So. 2d 876 (Fla. 2d DCA 1991), the court determined the trial date was the appropriate valuation date since the parties’ financial situations and property values had changed substantially in the more than three-year period between the petition and the amendment to the final judgment. In Macci v. Macci, 904 So. 2d 517 (Fla. 4th DCA 2005), the court determined that the date of dissolution trial as the valuation date for the parties’ assets was appropriate, given that each party had complicity and involvement in questionable financial practices both during marriage and during dissolution proceedings. Similarly, in Jahnke v. Jahnke, 804 So. 2d 513 (Fla. 3d DCA (2001), in which a husband failed to disclose the existence of his management savings plan, the court ruled that to value assets as of the date of the petition for dissolution, rather than the trial date, would reward the former husband for his deceit with full market appreciation of the marital portion of assets between dissolution and hearing, while depriving the former wife of appreciation of her interest in the assets.
In Kelly v. Kelly, 557 So. 2d 625 (1990), the Fourth District deemed that it was within the trial judge’s discretion to use the date of the dissolution trial as the focal date for determining marital assets and their valuations, as that date was found in fact that the husband had sole control over virtually all of the parties’ assets during the time between separation and trial.
While §61.075(6) addresses the issue of choosing the valuation date for marital assets, it does so in a broad-brush, perfunctory fashion by its plain language offering scant guidance to a trial judge faced with the quandary of choosing valuation dates that may dramatically change an equitable distribution scheme by millions of dollars. Though certainly a roadmap of sorts, the statute is hardly “a simple highway.”12 I ndeed, analysis of the case law interpreting the statute is critical in effectively advocating the trial court to choose a particular date to value a certain asset. The overarching consideration in determination of the appropriate date for valuation of marital assets is examination and analysis of the cause of increase or decrease in valuation of the subject asset between the date of separation and the date of trial. If the increase or decrease is primarily caused by passive forces, equity mandates that both parties share in the increase or decrease, and, thus, the later date should generally be used. Conversely, when the increase or decrease in the value of the asset is caused by active forces, e.g. , a party’s positive efforts or misfeasance, the earlier date will be used so as to direct the increase or decrease in the valuation of the asset between the separation and trial date to the party who is responsible for that change in valuation.
1 Fla. Stat. §61.075(1) (2003).
2 Wegman v. Wegman, 509 N.Y.S.2d 342, 349 (N.Y. Ct. App. 1986).
3 Thielenhaus v. Thielenhaus, 890 P.2d 925 (Okla. 1995).
4 Fla. Stat. §61.075(6) (2003).
5 A s noted, and although Perlmutter was essentially overruled on this issue by Fla. Stat. §61.075(4) (Supp.1988), it was restored to full force and vigor by the later amendment of §61.075(6) contained in Ch. 94-204, §1, at 1172, Laws of Florida, e.g. , Byers v. Byers, 910 So. 2d 336 (Fla. 4th D.C.A. 2005) (applying post-1994 statute and citing Perlmutter ); Jahnke v. Jahnke, 804 So. 2d 513 (Fla. 3d D.C.A. 2001) (same).
6 Moore vs. Moore, 543 So. 2d 252 (Fla. 5th D.C.A. 1989).
7 Wegman, 509 N.Y.S.2d at 352.
8 Norwood v. Anapol-Norwood, 931 So. 2d 951, 952 (Fla. 3d D.C.A. 2006); see generally Rao-Nagineni v. Rao, 895 So. 2d 1160 (Fla. 4th D.C.A. 2005).
9 Nelson, 795 So. 2d at 983.
10 Wallop v. Wallop, 88 P.3d 1022 (Wyo. 2004) (trial court acted within its discretion when it selected the year in which husband and wife separated as the date of valuation and division of marital property in divorce action; parties in essence lived their own distinct lives after separation); Derrit v. Derrit, 836 N.E.2d 39 (Ohio Ct. App. 2005) (when valuing marital residence, which had active mold growth, in divorce action, appropriate value was present value of residence, not future value following removal of mold and various renovations); Walker v. Walker, 618 N.W.2d 465 (Neb. Ct. App. 2000) (valuation of marital residence as of date of parties’ separation, rather than date of trial or date of dissolution, was not abuse of discretion). Willis v. Willis, 358 S.E.2d 571 (N.C. Ct. App. 1987) (trial judge was required to determine net market value of property as of date of separation when, between date of separation and date of hearing, husband sold some property, cashed certificate of deposit, closed bank accounts, and commingled proceeds with his separate property, and court improperly traced all of marital property as it had existed at time of separation); Fishman v. Fishman, 805 A.2d 576 (Pa. Super. Ct. 2002) (use of date of separation for valuation of assets in divorce was proper when valuation at separation included husband’s interest in accounting firm as a marital asset, which was extinguished by the date of distribution by husband’s waiver of buyout rights, leaving only husband’s nonmarital interest in consulting firm); In re Marriage of Griswold, 48 P.3d 1018 (Wash. Ct. App. Div. 3 2002) (value of property was to be based on an appraisal at separation; the depreciation of the home’s value was due to wife’s lack of maintenance, rather than market forces); Reinhardt v. Reinhardt, 745 So. 2d 609 (La. 1999) (trial court’s decision to value husband’s life insurance policy at the time of parties’ separation was not error, in light of fact that premiums paid after filing of petition were from husband’s separate income).
11 T he court cited Lynn Curtis, Valuation of Stock Options in Dividing Marital Property Upon Dissolution, 15 J. Am. Acad. Matrim. Law. 411, 412 (1998), for the proposition that “these high level executives have a direct bearing on the success of the company, so in a very real sense, the increased value of the company’s stock is directly attributable to their efforts.”
12 The Grateful Dead, Ripple (Hunter, Garcia), American Beauty (Warner Bros. Records, 1970).
David L. Manz practices with the law firm of Greenman, Manz, & Ables, P.A., in the firm’s Marathon and Key West offices. His practice is limited to complex marital and family law matters. Mr. Manz is board certified in marital and family law and is a fellow in the American Academy of Matrimonial Lawyers. He is also a member of the executive council of the Family Law Section, chair of the Family Law Section Equitable Distribution Committee, and a past chair of the Marital and Family Law Board Certification Committee.
This column is submitted on behalf of the Family Law Section, Thomas J. Sasser, chair, and Susan W. Savard and Jeffrey A. Weissman, editors.