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When Business Interests Are Valued Subsequent to the Date of Commencement
In last month's issue, we discussed at length how, when the value of a business interest is impacted by adverse events subsequent to the date of commencement outside of the titled spouse's control, courts have recognized that it would be inequitable to ascribe a date-of-commencement value. Let us now address two other scenarios where valuing a business interest as of the commencement date value would unfairly prejudice one party because the change in value is in no way attributable to the titled spouse's active efforts. In both scenarios, courts have appropriately valued the business interest as of a date subsequent to the date the action was commenced. First is the situation in which the value of the interest either increases or decreases as a result of passive market forces. And second, courts have valued business interests as of a date later than the date of commencement if the value is increased due to the efforts and contributions of the non-titled spouse.
Passive Market Forces or The Efforts of the Non-Titled Spouse
In Breese v. Breese, 256 AD2d 433 (2nd Dept. 1998), the Second Department vacated the trial court's order setting the valuation date of the husband's real estate development corporation as the date of commencement, finding that the business should instead be valued as of the date of trial. The court noted that the value of the business was “essentially that of the real property which it owns,” and the husband failed to demonstrate that any change in value was due to his efforts, rather than market forces. Likewise, Lampard v. Lampard, 219 AD2d 835 (4th Dept. 1995), concerned, among other things, the distribution of the husband's interest in a real estate venture that owned the building where he practiced medicine. There, the Fourth Department found that the lower court had erroneously used the date of commencement for purposes of valuing the real estate venture, rather than employing a date of trial valuation. While the court does not set forth the specific reasons for its reversal, we can posit that, inasmuch as the entity's value was determined by the underlying value of the real estate it owned, the increase or decrease of which was entirely a result of market forces, a trial date valuation was found appropriate.
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