Who Gets The Money When a Marital Asset Increases In Value During a Charleston Divorce?
The value of a marital asset can increase significantly during a Charleston divorce case. For example, a house on Kiawah Island may increase $150,000 in value between the date on which a divorce case is filed and the date on which a divorce becomes final. Likewise, the value of a business in Charleston might jump $500,000 due to success in marketing a new product.
If your marital assets are increasing in value, you may be asking: “Who will benefit if the value of my marital assets increases while my Charleston divorce is pending?”
The answer to your question hinges on whether the increase in value of your marital asset is characterized as “active appreciation” or “passive appreciation.”
The Value of a Marital Asset Can Be Determined at Different Times in the Divorce Process.
Your judge will make an equitable division of your marital property and debts as part of your Charleston divorce. The division of your marital property could be very difficult if you have a high net worth.
Before your divorce judge can divide your marital assets, the judge will have to determine the value of each marital asset. The value of one of your marital assets could change 25% or more during the year or longer that it may take for your Charleston divorce to become final.
The general rule in Charleston divorce cases is that the value of marital property is determined on the date on which the divorce complaint is filed with the divorce court. Usually, the value of a marital asset is not determined on the date on which (a) you stopped living together with your spouse; or (b) your divorce becomes final.
There are exceptions to these general rules regarding the date of valuation for marital property. One of the more significant exceptions concerns marital property that significantly increases or decreases in value while the divorce case is pending. The value of an appreciating marital asset can be determined on the date of filing or the date of divorce.
What Is an Active Appreciation in Asset Value?
Your Charleston divorce judge should use a two-step process to decide whether the increase in the value of your business, retirement account, real estate, or other asset will be divided as marital property or set aside as separate property. Your divorce judge must decide:
- Did the value of the marital asset increase while the divorce was pending? and
- Did you or your spouse indirectly or directly cause the marital asset to increase in value during the divorce process?
The increase in the value of a marital asset during your divorce can be assigned to one party as separate property, if a divorce judge finds that the increase in value was the result of “active appreciation.” Alternatively, if the increase in value was the result of “passive appreciation,” your divorce judge should treat the increase in value as marital property to be divided between the parties. Consequently, the division of marital assets in your case could be substantially different depending on whether your divorce judge treats the increase in the value of your marital assets as active appreciation or passive appreciation.
Who “Wins” When a Marital Asset Increases in Value?
An increase in the value of a marital asset will be characterized as “active appreciation” if the increase occurred as the result of the financial or managerial contributions of you or your spouse after the complaint was filed in your divorce. In contrast, the increase in value of a marital asset will be characterized as “passive appreciation” if the increased value resulted from circumstances beyond the control of you or your spouse, such as inflation or other changing economic conditions after your divorce case started.
You could benefit financially if your Charleston divorce judge finds that you caused a martial asset to increase in value (i.e., “active appreciation” in value). The increase in the value of the asset should then be treated as your separate property and you should not have to divide the increase with your spouse. In contrast, if you were not actively involved with the asset, you would benefit from your divorce judge finding that your spouse did not cause the increase in value (i.e., “passive appreciation” in value). Under that scenario, the passive increase in the value of the asset should be treated as marital property to be divided between you and your spouse.
Let me illustrate by comparing how an increase in the value of your marital home might be treated under two scenarios. Under the first scenario, if you alone make a significant reduction in the home mortgage debt after the filing of your divorce complaint, the increased equity in the marital residence should be allocated to you as your separate property because you caused the increased value by your solo financial contribution.
Under a second scenario, an increase in the value of your home during your divorce should be treated as “passive appreciation” to the extent to which the increased value was caused by a market-wide rise in prices for homes like yours. Your divorce judge should then determine the value of your home as of the date of your divorce (not the date of filing) and divide the passive appreciation between you and your spouse as marital – not separate – property.
Proving a higher or lower value for a marital asset is more of an “art” than a science. You will need the help of an experienced Charleston divorce attorney and a team of supporting experts to prove the value most beneficial to you in the equitable division of marital property. Likewise, to prove that you – not market or other forces – caused an increase in the value of your business or other marital asset, you should hire a skilled Charleston divorce lawyer. With potentially hundreds of thousands of dollars at stake in your high net worth divorce, the cost of an experienced Charleston divorce attorney is a small price to pay in the bigger scheme of things.
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Divorce happens to good people. I am here to protect your rights and save your assets in your Charleston divorce.
As an experienced Charleston divorce and marital property division lawyer, I can answer your South Carolina divorce and legal separation questions. To speak directly with me, please call me now at 843-631-7117.
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