In a Florida divorce, all marital property needs to be divided between the couple. Florida is an “equitable division” state. This doesn’t mean that marital assets are necessarily divided exactly equally, but in a way that is fair under all of the circumstances. Part of dividing assets fairly involves making sure all assets are valued accurately. With some assets, that’s simple. Want to know the value of a bank account? Look at the statement. Want to know how much a house is worth? A real estate agent can help you figure out the market value. How are stocks and investments valued in a divorce? You may be surprised to learn that the answer is often more complex than just looking at a statement.
There are all sorts of investments, from stock in publicly-traded companies to rental properties to interests in a small start-up. But the first hurdle is not just determining what an investment is worth, but whether it is considered an asset or an income stream.
ASSET OR INCOME STREAM, AND WHY IT MATTERS
Let’s say you and your spouse own an investment property and a vacation cottage, both worth $200,000. It might seem fair that one of you take the cottage and one the investment property in the divorce since both of them have equal value. The vacation cottage is clearly an asset: a tangible piece of property that has value (although not all assets are tangible). The investment property also meets this definition. But the investment property also produces an income stream: a regular, ongoing source of income.
In this case, let’s imagine that you and your spouse have been renting out this property and making a profit, after maintenance and upkeep, of $12,000 per year. The spouse who gets the cottage gets the value of the cottage, which may, of course, appreciate or depreciate. The spouse who gets the investment property gets not only the value of the property but the income that it brings in. If you and your spouse expect to live another 25 years, that income will be considerable. This must be taken into account when dividing assets.
The income stream is also important because the court will consider it when determining child support, and deciding whether to award alimony (spousal support) and how much. Florida courts consider all relevant circumstances in awarding alimony, even if an income stream belonging to one party is the product of an asset that was awarded to that party during an equitable distribution of marital property. In essence, this is “double-dipping.”
Other assets which may have a dual nature, both the asset and income stream, are things like employee stock options, especially if those are not yet vested. They may produce income, they may have great value, they might turn out to be worth almost nothing. Guessing is not an option: work with an attorney who is experienced in handling high net worth divorce. An experienced attorney will have access to respected experts who can help arrive at the most reliable possible valuation.
WHEN INVESTMENTS ARE DIFFICULT TO VALUE
Investments which are considered assets subject to division, even if they do not produce an income stream, can still be difficult to value for purposes of division in a divorce. This is particularly true of stock options, as mentioned above, and stock in privately-held companies.
Florida courts have stated that “a trial court’s property value must be supported by competent, substantial evidence.” This does not mean taking the average between the valuations presented by opposing parties and their experts, but examining the evidence that each side presents in support of their position.
You and your spouse could agree to avoid the expense of an expert and just decide on a value, but a responsible legal advisor would not recommend this a risky proposition. Your spouse may have inside information that you do not have access to. Even if you are both proceeding in good faith, you could make an error in valuation that costs one of you hundreds of thousands of dollars. In comparison, investing some money in the services of an expert is a much wiser choice.
The importance of employing an experienced Florida valuation expert cannot be overstated. Stocks and investments may make up the bulk of your marital estate, and presenting a court with substantive evidence as to their value is essential. Even if you and your spouse are willing to reach a settlement, you cannot do so unless you have an accurate picture of the value of all assets, including investments that are difficult to value.
If you have questions about the valuation of stocks and investments in a Florida divorce, we invite you to contact Miami divorce lawyer Antonio Jimenez for a consultation.