Under New York Divorce Law, Valuation Date of Marital Assets Depends on Active-Passive Distinction

Under New York divorce law, property that was acquired by either or both spouses during their marriage, and before the execution of a separation agreement or the commencement of a divorce action, is generally considered “marital property,” regardless of the form in which title is held. (A� 236(1)(c), NY Domestic Relations Law).
Particularly in light of the extreme market fluctuations that have occurred during recent years, the date as of which a particular item is valued can have extraordinary consequences with regard to valuation. This is particularly true with respect to real estate and stock market investments, which have been subjected to particularly acute fluctuations in value.
Moreover, because contested divorces in New York are frequently litigated for several years, the value of a particular asset list of crimes and misdemeanors as of the date that a divorce action is commenced may differ considerably from its value as of the date of trial.
In most cases, New York courts apply an active/passive test to determine the valuation date of a particular asset. The foregoing test has been described by New York’s Court of Appeals as follows:
In attempting to select a suitable valuation date, some courts have drawn a distinction between “active” assets (i.e., those whose value depends on the labor of a spouse) and “passive assets” (i.e., those whose value depends only on market conditions). These courts have concluded that “active” assets should be valued only as of the date of the commencement of the action, while the valuation date for “passive” assets may be determined more flexibly
The Court of Appeals cautioned that active versus passive distinction was a guidepost and might, in certain cases, not be the appropriate litmus test. Nonetheless, human rights law notes the active/passive test with regard to post-commencement fluctuations in value is, without question, the most common standard applied by New York divorce courts.
In summary, the issue of whether a particular asset constitutes marital property is just the beginning of the equitable distribution analysis required under New York law. Every New York divorce lawyer and litigant must also give careful attention to the manner in which each asset is valued.

READ  Divorce Law Questions