Determining whether property is community or separate property is only part of the property-division process. The court may also need to determine what an asset is worth before it can divide the community estate.

This can become particularly important when real estate, a business, investments, or other assets change substantially in value while the divorce is pending. California generally values property as close as practicable to the time of trial, although an earlier valuation date may be appropriate in certain circumstances.

What Is the General Rule for Valuing Property?

California’s general rule is that property should be valued as near as practicable to the time of trial.

For example, when community real estate will be divided at trial, an appraisal may be needed at or near the trial date rather than relying on an appraisal obtained much earlier in the divorce.

The same issue can arise with businesses and other assets whose values may change while the case is pending.

Using a relatively current valuation allows the court to determine the value of the property being divided based on circumstances existing near the time the division actually occurs.

Can the Court Use an Earlier Valuation Date?

Yes.

When good cause exists, the court may value some or all assets and liabilities on a date after separation but before trial when doing so will help accomplish an equitable division.

One situation identified in the source materials involves a community business operated by one spouse after separation.

If the business’s value depends largely on that spouse’s personal services, using the trial date could potentially include value created through the spouse’s post-separation work. An earlier valuation date may help distinguish the community’s interest from value attributable to post-separation efforts.

An alternate valuation date may also be appropriate when one spouse’s post-separation actions substantially increase or dissipate the community estate.

Why Can Business Records Affect the Valuation Date?

Reliable financial records can be critical when valuing a business.

The source materials recognize that an alternate valuation date may be justified when a spouse’s deliberate or reckless failure to maintain proper records prevents the business from being accurately valued at the time of trial.

This illustrates why business owners should preserve accounting records, financial statements, tax documents, transaction information, and other records while a divorce is pending.

Poor recordkeeping can affect more than the ability to calculate the business’s value. It can potentially affect which point in time the court uses when determining that value.

Identifying Valuation Issues Early Can Be Important

The valuation date should not necessarily be treated as a last-minute trial issue.

When a spouse believes an asset should be valued on a date other than the trial date, the issue may need to be raised well before trial. An expert retained to value the property also needs to know which valuation date applies before completing the analysis.

For assets that fluctuate significantly in value, determining the appropriate valuation date can therefore be an important part of preparing the property division case.