Valuation Date Makes all the Difference

May 13, 2015 § 3 Comments

Two things are true when it comes to valuation of the marital estate in equitable distribution: (1) The date selected for valuation can be critical; and (2) Selection of the date of valuation is in the discretion of the chancellor.

The recent COA decision in McKissack v. McKissack, handed down May 5, 2015, illustrated both points.

Billy Stephen McKissack and Terri McKissack had consented to a divorce on the sole ground of irreconcilable differences, and left equitable distribution up to the chancellor. The judge entered a divorce judgment in November, 2008, ruling that some $542,000 in CD’s in Billy Stephen’s name were marital property. Billy Stephen appealed, and the COA reversed and remanded on October 12, 2010, holding that the CD’s were separate property. The chancellor was charged to reconfigure the equitable distribution based on the COA ruling.

On remand, the chancellor did adjust the equitable distribution to accommodate the COA ruling. He found that the financial disparity created by the half-million-dollar separate estate could not be made up by allocating assets, and so ordered Billy Stephen to pay Terri lump-sum alimony to make up the difference. He also left the original asset allocation for the most part intact. In making his ruling, the chancellor used the date of the original divorce judgment as the valuation date, and he relied on his previous ruling to Billy Stephen again appealed, complaining that the chancellor used the original divorce-hearing date for valuation, instead of a post-appeal, later date.

The reason Billy Stephen urged the later date is that he had acquired new debt since the date of the original divorce, the largest of which was a debt he had co-signed with his paramour for an apartment complex that had subsequently been destroyed in a fire.

In the case of McKissack v. McKissack, decided May 5, 2015, the COA affirmed. Here’s how Judge Maxwell, writing for the majority, addressed Billy Stephen’s arguments:

¶9. As Steve sees it, the chancellor’s distribution of marital assets was “unfair” because he gave too little weight to Steve’s newly acquired debt from the apartment fire. He also insists the chancellor should have conducted a Ferguson analysis anew on remand and improperly skimped on the Cheatham factors. After review, we find no error in the chancellor’s methodology.

I. Equitable Distribution After Remand

¶10. There are three general tasks required of a chancellor’s division of marital assets in divorce cases. The chancellor must “(1) classify the parties’ assets as marital or separate, (2) determine the value of those assets, and (3) divide the marital estate equitably based upon the factors set forth in Ferguson.” Rhodes v. Rhodes, 52 So. 3d 430, 436 (¶18) (Miss. Ct. App. 2011) (citation omitted) (citing Ferguson v. Ferguson, 639 So. 2d 921, 928-29 (Miss. 1994)) [Footnote omitted]. We review a chancellor’s equitable division under the familiar manifest-error standard of review. Vaughn v. Vaughn, 56 So. 3d 1283, 1288 (¶17) (Miss. Ct. App. 2011).

A. Newly Acquired Debt

¶11. To Steve, his losses from the apartment fire were reason enough to not have to pay additional lump-sum alimony. And he argues it was wrong for the chancellor not to have re-valued the marital estate, giving more weight to his newly acquired, non-marital debt from the apartment fire.

¶12. But on remand, the chancellor opted to use the property values already “in evidence at the trial on the merits”—rightly noting that the “date of valuation is discretionary with the court.” Because he had already valued the property as of the divorce hearing date when making his findings, he found “any accumulation of additional assets or the appreciation of awarded assets should be classified as separate property[.]” Steve urges it was wrong for the chancellor to use the divorce hearing date as the “point of demarcation for valuation.”

B. Valuation Date

¶13. Steve’s argument is blunted by the fact that chancellors are given deference in setting the valuation date for equitable distribution of marital property. Holdeman v. Holdeman, 34 So. 3d 650, 654 (¶13) (Miss. Ct. App. 2010). Often chancellors deem the date of the divorce hearing or judgment as the line of demarcation. See Wheat v. Wheat, 37 So. 3d 632, 637 (¶15) (Miss. 2010). The date of entry of a separate maintenance order or temporary support order may also serve as the valuation date. Id. (citing Godwin v. Godwin, 758 So. 2d 384, 386 (¶7) (Miss. 1999)). But this deference is measured against the general notion that “assets should be valued as close to the trial date as feasible.” Debbie Bell, Mississippi Family Law § 6.07[3] (2005).

¶14. The trial-date approach is the route the chancellor took here. He made a common-sense decision that the date of the divorce hearing would be the cut-off point. He held any later-accumulated assets or appreciation of already-awarded assets would be separate property. See Henderson v. Henderson, 757 So. 2d 285, 293 (¶37) (Miss. 2000) (On remand, the supreme court held a husband’s one-half interest in the marital home should be valued from the divorce date—not several years after the case had been appealed and retried, during which time the wife had been paying the mortgage on an appreciating asset). The chancellor was, however, aware of authority that post-divorce passive appreciation of asset values could be included [Footnote omitted]. But he found no proof of passive appreciation here.

¶15. What Steve largely overlooks is that his preferred valuation date cuts both ways. It is true the chancellor gave little weight to Steve’s newly acquired debt for valuation purposes. But he also refrained from tampering with Steve’s possibly new assets—though he perceived Steve’s income was greater and his expenses lower than when the couple divorced. Also, the chancellor highlighted that the resulting debt from the apartment fire was not from Terri’s wrongdoing or fault. The apartment was Steve’s separate property. And it was Steve who chose to sign as guarantor for his claimed paramour Millie’s debt in the complex. For these reasons, and those we explain below, we cannot say the chancellor erred in relying more on his initial valuations than Steve’s new debt.

The court went on to uphold the chancellor’s decision to rely on his original Ferguson analysis.

One thing that Billy Stephen apparently did was to put on proof of his preferred valuation date and the reasons supporting it. I have held forth here before about that failure of many attorneys in equitable distribution cases to put on any proof whatsoever in trials of the client’s position on what valuation date is selected. When you do that you are: (a) leaving it entirely in the judge’s unfettered discretion; and (b) depriving your client of a basis in the record to complain about it on appeal.

Every calculation involved in equitable distribution revolves around the valuation date. Remember that.

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