Unstable Financial Markets & the Impact on Equitable Distribution

Stock Market

In a Florida divorce, the process for dividing up the parties’ assets and liabilities is known as equitable distribution. This process has its own Florida statute (61.075), and there is an entire body of case law on how to identify, classify, and value assets and liabilities.

How Equitable Distribution Works

Generally, the idea with equitable distribution is to achieve an equal division of marital property, and to do that, each asset and liability is assigned a numerical value. Determining that numerical value involves selecting a valuation date that represents what the asset is worth at a particular point in time. The starting point for valuation dates is often the same date the divorce was filed.

In normal financial market conditions, this is generally acceptable because the value of an asset will remain relatively constant through the divorce process. However, in an unstable financial market, the value of an asset at the date of filing may be completely different than when the parties negotiate to resolve their case two months later.

Fluctuations in Asset Values & Property Division

To deal with unstable financial markets and other fluctuations in asset values, Florida law provides that the valuation date of an asset is determined by what is just and fair under the circumstances. Different assets can even have different valuation dates.

Even still, imagine you settle your divorce case and it’s agreed that you will get $25,000 in stock, and your spouse gets $25,000 cash- you both walk away with $25,000 worth of assets that were equitably distributed, and everything is great. Two days later, the stock market crashes, and your stock is now only worth $10,000. The $25,000 cash your spouse received is still sitting in the bank, and after only two days, the distribution is no longer equal. The law provides almost no recourse in that situation, and the instability and volatility of the stock market just cost you $15,000 that you never planned on losing when you settled your case.

How to Protect Your Rights & Assets

In unstable financial markets, there are things you can do to protect yourself in distributing assets and liabilities. You may want to diversify the assets you retain in the divorce, so you don’t take a big loss like in the example from the previous paragraph. If the parties in that example had evenly divided the stock and the cash in the bank, they both would experience the same downturn in the value of the stock, and they both would have retained some cash that would have kept its value.

You and your lawyer can also get creative and build your own procedures and protections for dealing with unstable market conditions. By way of example, assume the real estate market is extremely weak at the time of a divorce. The parties’ agree their marital home is being undervalued. They don’t want to share a big loss by selling it in a down market when they both think the market will rebound within a year. To address this problem, they could agree to rent the home out for a year or have one of the parties remain in the home for a year, and then sell it when the market stabilizes so they can both share in the profits.

Regarding equitable distribution, it is essential to understand the nature of each asset, and how closely its value is dependent on market conditions. With this knowledge, you are prepared to manage risks, and perform the proper cost benefit analysis in equitably distributing marital property.

Robert Sparks Attorneys has extensive experiencing helping clients protect their rights and financial well-being in divorce. Learn how we can help by calling today.