Valuation date in bifurcated trials

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Valuing assets in a divorce case is factually and legally complex, but picking the valuation date is easy, right? After all, we have a statute in Illinois that requires the court to “value the property as of the date of trial or some other date as close to the date of trial as is practicable.” 750 ILCS 5/503(f). Thus, in most divorce cases, the valuation date for marital property is the date of the divorce trial or another date near it.

But consider this: The court grants a bifurcated judgment dissolving the bonds of matrimony but reserves the ancillary issues and division of property for a later date. Nearly 10 years pass between the date of the divorce judgment and trial on the property issues. What date should the court use to value the assets — the date of divorce or the date of trial on the property issues?

In a 4-3 decision, the Illinois Supreme Court held the date of the divorce is the proper valuation date despite the long time gap. In re Marriage of Mathis. 2012 IL 113496. The Supreme Court reversed the decision of the 4th District Appellate Court, which held that pursuant to Section 503(f), the proper date for valuation is on or near the date of trial on the property issues rather than the date of the divorce judgment. In re the Marriage of Mathis. 2011 IL App (4th) 110301.

The appellate court recognized that its interpretation of Section 503(f) disregards long-existing case law in Illinois, but believed this was a more equitable and practical approach given market fluctuations and the chance that assets may no longer exist at the time of trial, making them impossible to divide.

Kenneth Mathis appealed to the Illinois Supreme Court, contending that “the date of trial” language in Section 503(f) is ambiguous because there are multiple trial dates in bifurcated proceedings. He also argued that the appellate decision produced the absurd result of providing a windfall to his former spouse by allowing her to capture the fruits of his post-divorce efforts. He reasoned that once the parties were divorced, the property they acquired is no longer marital. The Supreme Court agreed and reversed the appellate decision.

Justice Mary Jane Theis, writing for the majority, held that in a bifurcated proceeding the date of valuation is on or near the date the court enters a divorce judgment on grounds, not the date of trial on ancillary issues. The court relied on a long line of appellate decisions and found additional support in other subsections of Section 503 as well as through the doctrine of legislative acquiescence. The Supreme Court noted that the General Assembly has amended Section 503 at least 10 times over the last 20 years but never changed Subsection (f), thus indicating its acquiescence to the courts’ interpretation that the valuation date is the date of divorce.

Justice Rita B. Garman wrote the dissent. She was not persuaded by the doctrine of legislative acquiescence or the prior appellate decisions because they do not distinguish between the classificationof property and thevaluation of property, nor do any of them deal with a situation where a significant amount of time lapsed and there was a substantial change in value of the marital assets.

Mathisreveals the pitfalls associated with bifurcation and shows why courts are reluctant to allow bifurcation.

Sometimes parties agree to it, but bifurcation is limited usually to circumstances where the court does not have personal jurisdiction over the respondent; where a party is unable to pay child support or maintenance; where the parties’ child does not reside with either parent; where unduly prolonged litigation is having a serious and detrimental impact on the mental health of the parties or their child; or where one of the parties is expecting a child with another person and intends to marry that person.

While this list is not exhaustive, it reflects a policy that courts should not bifurcate lightly because of the numerous complications and delay it tends to cause, which is contrary to the “systematic interests in achieving finality, promoting judicial economy and avoiding piecemeal litigation.” Mathis, 2012 IL 113496.

Especially in a volatile economy and a case with a 10-year time gap, the valuation date can make a significant difference.

States differ dramatically in setting the valuation date.

Some states such as Illinois use the date of dissolution. Others use the date of separation, the date of filing of the petition for dissolution of marriage, the date of trial or another date solely within the court’s discretion without any legislative guidance.

While the discretionary approach may lead to unpredictability, it gives the court greater flexibility to ensure equity in distributing marital property.

The Mathis trial court lacks this flexibility and is now put in a position of dividing assets based on stale values, assets that no longer exist and assets into which nonmarital property has been comingled.

The General Assembly could remedy this result by maintaining the current language of Section 503(f) but creating an equitable exception like many states have that provides for flexibility and a different valuation date in extraordinary circumstances.

Article originally appeared in the February 2013 issue of Chicago Lawyer.