By Attorney Heather Krumm and Attorney Kristin Binder
Attorney Kristin Binder
The legislature has recently updated N.D.C.C. § 14-05-24(1). This new provision took effect on August 1, 2021. There are two major changes: first, the default date of valuation has changed from the date of service of the summons to sixty days before the initially scheduled trial date; and second, the district court now has more authority to adjust the valuation date as equity demands.
Although apparently a minor provision in the lengthy statutory provisions relating to divorce, the valuation date can have significant effects on the course of litigation and in the overall distribution of assets. The valuation date has far-reaching effects, affecting everything from home value to the date of valuation for a QDRO. Particularly in our current period of economic fluctuation, several months difference in valuation between when an action is commenced and until trial is held can be the difference between a 401(k) valued at $250,000 and a 401(k) valued at $150,000.
Under the old version of the statute, the Supreme Court held that a district court had oversight discretion in considering the parties’ agreed upon valuation date and no discretion in selecting a valuation date if there is no agreement. In Berdahl v. Berdahl, the Supreme Court determined that, absent agreement of the parties, “the legislative assembly ‘has provided a definitive process for determining the date to value the marital estate that limits the district court’s discretion to accepting or rejecting an agreed upon valuation date,” and ‘[t]he statute does not provide the court with discretion to select its own valuation date.’” 2022 ND 136, ¶ 16 (citing Messmer v. Messmer, 2020 ND 62, ¶ 19, 940 N.W.2d 622). It is important to note that the legislature has now removed the provision allowing the court discretion in reviewing the parties’ mutually agreed upon valuation date. Meaning, if the parties agree on a valuation date, that is the date that should be used for valuation.
Under the updated provision, the date of valuation defaults to sixty days preceding the initially scheduled trial date. This means that all property acquired after separation is included in the valuation of the marital estate. Therefore, income earned during the time of separation, and any property purchased as a result of that income, becomes part of the marital estate. Similarly, any debt incurred during the time of separation is also considered when calculating the equity in the marital estate.
Although the updated statute took effect on August 1, 2021, there may still be cases pending which were filed before the statutory change took effect. For cases filed before this update, the 2017 version will apply and the district court will have the discretion to accept or reject the parties’ agreement regarding a valuation date. If no agreement is reached, or the district court rejects the parties’ agreement, the valuation date must be the date the summons is served or the date which the parties last separated, whichever occurs first.
In cases filed on or after August 1, 2021, the district court has now been granted explicit authority to adjust the valuation of the parties’ assets or debts if there has been a substantial change in the value of the asset or debt between the date of valuation and the date of trial. This could include economic fluctuations, but could also include consideration of a party’s frivolous spending or the incurrence of unnecessary debts. Further, as the valuation date under the updated statute is sixty days prior to the initial trial date, if the trial gets continued and there is a significant change in valuation, the district court could exercise its discretion to determine a different valuation date appropriate. If a district court exercises this authority, it must make specific findings that the adjusted date of valuation is fair and equitable. If proposing a different valuation date to the court, it is important to have the documentation the court will need to support the appropriateness of that argument. As always when dealing with the marital estate, the court should be looking at what is equitable.