Opinion ID: 2509669
Heading Depth: 2
Heading Rank: 1

Heading: Valuation of Avtex VII

Text: Petitioner contends the family court erred in valuing Avtex VII at the time of filing rather than at a date occurring after a separation but before final divorce. We agree. In South Carolina, marital property subject to equitable distribution is generally valued at the divorce filing date. Fuller v. Fuller, 370 S.C. 538, 545-48, 636 S.E.2d 636, 640 (Ct.App.2006); see also S.C.Code Ann. § 20-3-630 (Supp.2010) (`[M]arital Property' as used in this article means all real and personal property which has been acquired by the parties during the marriage and which is owned as of the date of filing or commencement of marital litigation). However, the parties may be entitled to share in any appreciation or depreciation in marital assets occurring after a separation but before divorce. McDavid v. McDavid, 333 S.C. 490, 497 n. 7, 511 S.E.2d 365, 369 n. 7 (1999); Fields v. Fields, 342 S.C. 182, 186, 536 S.E.2d 684, 686 (Ct.App.2000). [G]iven the volume of cases handled by our family courts, there often is a substantial delay between the commencement of an action and its ultimate resolution. Thus, it is not unusual for the value of marital assets to change, sometimes substantially, between the time the action was commenced and its final resolution. Dixon v. Dixon, 334 S.C. 222, 228, 512 S.E.2d 539, 542 (Ct.App.1999). When determining the proper date of valuation, other states examine whether there has been active or passive appreciation or depreciation of the marital assets. See Mayhew v. Mayhew, 205 W.Va. 490, 519 S.E.2d 188 (W.Va.1999); Greenwald v. Greenwald, 164 A.D.2d 706, 565 N.Y.S.2d 494 (N.Y.A.D.1991); In re Marriage of Wagner, 208 Mont. 369, 679 P.2d 753 (Mont.1984); Brackney v. Brackney, 199 N.C.App. 375, 682 S.E.2d 401 (Ct.App.2009); Scavone v. Scavone, 243 N.J.Super. 134, 578 A.2d 1230 (N.J.Super. Ct.App.Div.1990); Diamond v. Diamond, 360 Pa.Super. 101, 519 A.2d 1012 (Pa.Super.Ct.1987). As one court explained: Passive appreciation refers to enhancement of the value of property due solely to inflation, changing economic conditions, or market forces, or other such circumstances beyond the control of either spouse. O'Brien v. O'Brien, 131 N.C.App. 411, 420, 508 S.E.2d 365 [300, 306] (1999). See Lee's Family Law § 12.52(b)(i) ([P]assive forces include interest, inflation, market forces, government action, [and] labor of third parties. ...). Active appreciation, on the other hand, refers to financial or managerial contributions of one of the spouses. O'Brien, 131 N.C.App. at 420, 508 S.E.2d at 306. Brackney, 199 N.C.App. at 385-86, 682 S.E.2d at 408 (emphasis added). Courts tend to value active appreciation or depreciation at the filing date to encourage the parties to engage in productive economic activity and discourage waste by allowing them to reap the reward of their labor and suffer the burden of their dissipation. See, e.g., McDavid, 333 S.C. at 496, 511 S.E.2d at 368; Bowman v. Bowman, 357 S.C. 146, 591 S.E.2d 654, 660 (Ct.App.2004). On the other hand, passive appreciation of marital property should be valued at a post-filing date when equity requires that both spouses share in the fruits of the marriage. See, e.g., Fuller, 370 S.C. at 546, 636 S.E.2d at 640. In making the public policy argument for the active and passive distinction it has been said: It is fairer to value a passive asset at or near the time of the final hearing, because both parties are equally deserving to share in any increase or decrease.... [On the other hand,] active assets should be valued at the time of commencement [or filing] of the marital litigation, to enable the person who causes the change in value to receive the benefits of his or her labor and skills or, conversely, to prevent the person who controls the assets from manipulating the value downward during litigation. Roy T. Stuckey, Marital Litigation in South Carolina 310 (3rd ed., 2001). While this Court has never formally adopted the active and passive distinction, precedent in our state supports its adoption. In Bowman, the court of appeals noted that passive post-filing changes in the appreciation or depreciation of marital assets may be considered by the family court in determining an equitable apportionment of the marital estate. 357 S.C. at 146, 591 S.E.2d at 660. Moreover, without using the precise language, our courts in practice have applied the active and passive distinction in furtherance of equity and public policy. See, e.g., Fuller, 370 S.C. at 546, 636 S.E.2d at 640 (finding an IRA account that passively increased in value should be valued at the date of the final hearing rather than the divorce filing date); Bowman, 357 S.C. at 159, 591 S.E.2d at 660 (holding where the husband actively and intentionally depleted his retirement account, the account should be valued at the filing date); Dixon, 334 S.C. at 234, 512 S.E.2d at 545 (finding where the husband actively set out to destroy his business during the marital litigation, the proper valuation date for equitable division is the filing date); Mallett v. Mallett, 323 S.C. 141, 151, 473 S.E.2d 804, 810 (Ct.App.1996) (holding where the husband's insurance business decreased passively because of market forces, the proper valuation date was the date of the hearing rather than the filing date). In McDavid v. McDavid , this Court determined that the increase in the equity of a marital home from the time of filing to the time of trial stemmed from the reduction in the mortgage balance due solely to payments made by the wife and not her husband. [4] 333 S.C. at 496, 511 S.E.2d at 368. In other words, the wife's active contribution caused the appreciation in the equity of the marital home, and we determined the valuation date should be the date of filing. Id. Applying the active and passive distinction in the present case, we find that appreciation in value of Avtex VII that occurred post-filing does not cross the threshold from passive to active. Husband's only real contribution to the Avtex VII project was to arrange the initial meeting between Small and the landowners. However, Husband made this contribution during the marriage so any value derived from it was marital property. S.C.Code Ann. § 20-3-630 (Supp.2010) (The term `marital property' as used in this article means all real and personal property which has been acquired by the parties during the marriage). Husband claimed Avtex VII had no value at the time of filing because the equity value of the property was zero. [5] Assuming this proposition is true, only Husband's post-filing activities matters. In this regard, the Record indicates that Husband's post-filing contribution was minimal, if any. Small financed 100% of the deal by taking out a personal loan, and Small testified that he purposely restricted Husband's role in the Avtex VII project. In addition, neither party contests that the Wal-Mart lease was the primary cause of the increase in the value of Avtex VII. The acquisition of the lease and the subsequent appreciation of the property was attributable to Small alone, and as Small testified, Husband played a passive role from January 2005 (the filing date) to September 2005 (the lease date). Husband's participation in the Avtex VII project amounted to attending two trade shows where he failed to attract any lessees or add value to the project. Consequently, the appreciation resulted from the labor of a third party. See Brackney, 199 N.C.App. at 385-86, 682 S.E.2d at 408 (citing with approval a definition of passive appreciation that includes labor of a third party). Under these facts, Husband's involvement does not cross the threshold from passive to active. [6] Thus, we formally adopt the active and passive distinction and deem the appreciation of Avtex VII passive, and value the property at the buyout date of the property rather than the filing date. Furthermore, we order that the passive gain be split fifty/fifty between the parties.