Active Assets

A few weeks ago, I posted a piece on this blog about the business valuation concept known as reasonable or replacement compensation.  After that post, I received an email from a well known business valuation expert, Sam Rosenfarb of Rosenfarb LLC, with an attachment containing an article that he wrote regarding the issue of the change of value of a business after the date of Complaint for Divorce.  That article along with the ever growing backlog in the family courts created by the budget crisis and other factors got me thinking more about this topic. In some counties, it may be more than three years to get a trial date at this time.

Why is this important?  In New Jersey, passive assets (e.g. real estate, bank accounts) are typically valued as of the date of distribution.  On the other hand, active assets, such as a business, where the value could be tied to the efforts of the business owner, are typically valued as of the date of the divorce Complaint.  As such, in your typical case, the increase or decrease in value post-complaint is not considered though there is an ability to raise the issue in extreme circumstances.

This issue was relevant in a case that both Sam and my prior firms were involved in where it took nearly a decade for the case to get to trial and where the business increased in value substantially over that time.  That case started before New Jersey implemented "Best Practices" wherein, systemically, the goal was to get all cases resolved in a year.  Even cases that were more complicated and which had business valuation issues, could usually get a trial date within 18 months.  As such, the days of the 4 year, 5 year or longer case, where changes in value would likely occur, became less the norm as they had been before "Best Practices."

Continue Reading Changes in the Value of a Business Post-Complaint