Page 32 - Family Law Services

a number of states, the valuation date is the date of separation. In others, it could be the filing date of the
divorce petition. Or, in other states, the valuation date is the actual date the divorce is granted. Some-
times, multiple valuation dates may be relevant. The date of marriage, date of gift, or date of inheritance
may also be pertinent. A CPA not familiar with state law should seek guidance on which date is applica-
ble.

The case may be settled between the parties, submitted to mediation (or some other form of alternative
dispute resolution), or adjudicated. Nevertheless, in all likelihood, the values of the parties’ assets and
liabilities will change between the required valuation date and the date on which the actual distribution
occurs. If a brokerage account is to be split, the CPA may question how the change in values between
the date of valuation and the date of distribution should be addressed. A number of states address this is-
sue through statute, case law, or both; others do not. The CPA can assist the parties, if appropriate, in ar-
riving at an agreement that addresses these value fluctuations. The same issue may occur with other as-
sets or liabilities, including bank accounts, credit cards, and other asset distributions.

Division or Distribution of Assets, Liabilities, and Income

Even if there is no contest regarding the identification of assets and liabilities, their valuation, or nature
of their ownership, the CPA is often engaged to assist in the determination of the ultimate distribution of
the parties’ estate. While performing such functions, the CPA should understand the issues discussed in
the following sections.

Property Division

Equitable may not necessarily mean equal. One of the services CPAs may perform is the arithmetic task
of adding the values of each party’s proposed distribution of community assets and liabilities and calcu-
lating the amount and terms of payments that may be required from one party to the other, based on the
terms of a property settlement agreement. During this process, consideration may be given to determin-
ing the amount and terms if the assets or liabilities are transferred to other parties, such as the children of
the marriage.

It is not uncommon with property divisions for one party to be allocated more of the community assets
than the other party. An imbalance is solved by way of an equalization payment, which is a payment
made from one spouse to the other that is used to balance or offset the division of community property
in instances when one spouse receives more community assets than the other. It is also possible to equal-
ize a division by unevenly splitting a community asset, such as a bank or brokerage account, so the ulti-
mate division leaves the parties each with one-half of the total community assets. Based on the facts and
circumstances, it is also possible to have an unequal division of the total net assets.

Liquidity

During the process of allocating and ultimately dividing assets, the cash flow requirements and conse-
quences related to individual assets must be considered. This is another service the CPA can provide. In
a proposed property division, a party may be offered an asset for which he or she cannot afford the nega-
tive cash flow, tax consequences, or other costs of maintenance. Illiquid assets, such as real estate or re-
tirement plans, may be offered to a party in settlement proposals, even if the property may have a nega-
tive cash flow. In other scenarios, a party may be offered an asset that comes with high debt service. The
CPA’s assessment of the cash flow attached to an asset can assist the client and his or her counsel with
deciding whether this is an asset they should accept in a property division.

30 © 2020 Association of International Certified Professional Accountants