Step 2: Determination of the Value of Marital Property

• Jurisdiction: Maryland

III. STEP 2: DETERMINATION OF THE VALUE OF MARITAL PROPERTY

A. Overview

The second step in the three-step process is valuation of the marital property: "[T]he court shall determine the value of all marital property."¹⁸⁸ The trial judge must do so before making a monetary award.¹⁸⁹ The court need not determine the value of a pension that will be divided on an if-as-and-when basis.¹⁹⁰

B. Standard of Value

The Marital Property Act does not define the term "value." In general, the term means fair market value. Fair market value means "the amount at which property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts."¹⁹¹ Value is the "estimated or appraised worth"¹⁹² of property. The expansive concept of property that can be included in the marital estate means some property interests, such as unmatured stock options that cannot be sold, may nevertheless be valued as an economic resource.¹⁹³

C. Time of Valuation

1. As of the date of the judgment of absolute divorce or annulment

Marital property is to be determined and valued as of the date of the divorce or annulment based on the evidence at trial.¹⁹⁴ In many cases there will be some delay between the presentation of the evidence and the entry of a final judgment. When assets are of a type that fluctuate in value, such as cash accounts used for expenses and securities whose values change daily, the asset valuation will necessarily be approximate. No more is required as long as the judge rules within a reasonable time and there is not an extended delay due to an appeal.¹⁹⁵ When a party fails to cooperate in discovery and is not forthcoming at trial about the value of assets, the determination of value will necessarily be approximate.¹⁹⁶

2. Valuation after foreign divorce

Because marital property must be valued as of the date of divorce, when parties divorce outside of Maryland and then seek disposition of property in a Maryland court, as was the case in Dobbyn v. Dobbyn,¹⁹⁷ the trial judge must value the property as of the date of the foreign divorce, not as of the date of the conclusion of the Maryland marital property trial.

3. Stale evidence presented at trial.

Sometimes the evidence before the court is outdated. However, in the absence of better evidence, the trial judge may elect to use what it has before it. For example, in Rosenberg v. Rosenberg,¹⁹⁸ the most recent statement of retirement benefits was dated eight months prior to trial and no other evidence was produced as to valuation. The court did not err in accepting that statement to prove value.

A variation on the stale evidence problem occurs when a party dissipated marital property. The value of property at the time it was intentionally dissipated is evidence of value as of trial and, when it cannot be updated, may be sufficient by itself to establish current value.¹⁹⁹ In Karmand v. Karmand,²⁰⁰ where there was no other credible evidence presented, a trial court did not err in determining that the value of dissipated marital property was equivalent to its original purchase price. When a party claims to have sold property prior to trial under circumstances indicating dissipation, the court need not accept the claim of the seller-spouse as to the sale price.²⁰¹

4. Option to extend time to take valuation evidence

Family Law § 8-203(a) permits the trial judge, under specified circumstances, to extend the time for determining marital property by 90 days, or more, after entry of a judgment of absolute divorce or annulment. In Dobbyn v. Dobbyn,²⁰² the Appellate Court of Maryland interpreted this provision to permit the trial court to hold the equitable distribution trial, but reserve an additional 90 days to determine the value of property, when necessary, as, for example, when asset values are volatile.²⁰³

5. Delay between trial and judgment

As discussed above, some delay between the close of evidence and the decision is inevitable. However, under some circumstances, delay in the valuation decision may result in a distorted valuation of some or all assets that may be unfair to one or both parties.²⁰⁴

The trial judge may take too long to decide the case.²⁰⁵ When there is an appeal and remand, the inevitable delay may require the trial court on remand to take evidence of the then-current values of marital property.²⁰⁶ The burden of presenting such evidence remains with the party seeking an award.²⁰⁷

D. Proof of Value of Marital Property

1. Required methodology to establish value

The trial judge is charged with making a ruling as to the value of each item of marital property at the second step of the three-step process.²⁰⁸ However, as discussed below, the court is only obliged to do so if the parties put evidence before it. The court must make a factual finding as to the value of each item of marital property separately. It must determine the total value of each marital asset and subtract from its value the marital debt, if any, attributable to that asset.²⁰⁹

2. Burden of proof of value; consequences of failure of proof

The party who seeks a marital property interest in an asset owned by the other party has the burden of proof as to classification of the asset and its value.²¹⁰ Thus, a party who claims that appreciation of a nonmarital asset is marital property has the burden of proof as to the fact of active appreciation, and the value thereof.²¹¹ And, while the burden of proof does not shift, the burden of evidence does. Thus, once a party produces evidence sufficient to make out a prima facie case as to classification and value of marital property, the burden of producing evidence to the contrary shifts to the other party.²¹² Similarly, the party claiming the existence and value of marital debt, so as to reduce the net value of a marital asset, has the burden of proof to that effect.²¹³ When the party with the burden of proof has produced sufficient evidence of the existence and value of such debt, the burden shifts to the other party to rebut.²¹⁴ When one party produces evidence of value and the other does not, the trial court may accept the evidence presented to it; it is not an abuse of discretion for the trial judge to accept the only evidence before it as to the value of property.²¹⁵ When a party fails to cooperate in discovery and is not forthcoming at trial about the value of assets, the determination of value will necessarily be approximate.²¹⁶

If a party with the burden of proof as to the value of an asset fails to present evidence of value, the court may not make a monetary award to that party based on the asset in question.²¹⁷ A party's failure to meet his or her burden to identify and value some marital property does not preclude a monetary award with respect to other marital property as to which there is sufficient evidence before the court. It merely means that "only that property which was sufficiently identified and valued could be considered in determining the value of the monetary award."²¹⁸

3. Definitions of marital debt and treatment in valuation of marital property

The value of each item of marital property must be adjusted downward by the amount of the marital debt associated with it.²¹⁹ Failure to deduct marital debt from the value of the marital property acquired with such debt is error.²²⁰ The value of a marital asset is its gross value less the marital debt attributed to acquisition of that specific asset. Such debt may be secured by the property, but need not be,²²¹ as long as the debt can be shown to have been incurred to acquire the asset.

The valuation of marital property, as adjusted for marital debt, is not the same as determining net worth; debt that counts for purposes of determining net worth includes a party's unsecured debt, such as credit card debt used for consumption and not attributable to any specific asset. The trial judge cannot add up all the marital property, add up all the marital debt, and then subtract the sum of the latter from the sum of the former.²²² Similarly, there is no authority for the deduction at Step 2 of the loss incurred by a spouse in a bad investment from the value of the other marital property titled in his or her name.²²³ Rather, in determining the value of the marital property, net of marital debt, the trial judge must deduct from each marital asset the amount of marital debt attributable to the acquisition of that specific asset.²²⁴ When the marital debt attributed to the acquisition of a specific item of marital property exceeds the value of that property, the item of property is valued at zero at Step 2.²²⁵

Debt that is not marital debt for purposes of valuing martial property at Step 2 has no effect on the valuation of marital assets. Such debt will be taken into consideration at Step 3, when the court considers the statutory factors in determining whether disposition of property by title is equitable and, if not, the amount and terms of a monetary award.

[A] "nonmarital debt" is a debt which is not directly traceable to the acquisition of marital property. . . . A nonmarital debt may not serve to reduce the value of marital property. It has no function in the second step of the process. But it may be taken into consideration in the third step of the process-the determination of the amount and method of payment of the award.²²⁶

The expected future cost of liquidating property to satisfy a monetary award, such as real estate broker's commission or commissions for sale of securities,²²⁷ and tax consequence resulting from a sale²²⁸ are not marital debt, such debt may not be used to reduce the value of marital property at Step 2. Rather, the existence of such debt is a factor to be considered at Step 3. Similarly, because an unpaid income tax liability on the sale of an asset, the proceeds of which were used to acquire another asset that is classified as...