Beyond the Imminent Sale Doctrine: Valuing Assets with Imbedded Tax Consequences

In the past, Florida courts used to follow a rule that didn’t take into account potential taxes when dividing assets in a divorce. But now, they have changed their approach to make sure that all tax consequences are considered to make things fair for both parties. This change was influenced by federal courts’ decisions on how to value assets in divorce cases. In the past, Florida courts didn’t consider the tax consequences of assets in divorce cases unless a sale was about to happen. But in the early 1990s, the courts started to require that tax consequences be taken into account for a fair distribution of marital assets. This means that if an asset will have taxes owed when it’s sold in the future, those taxes should be considered when dividing property in a divorce. This new standard has been applied in several cases. In a recent court case, it was found that the trial court made a mistake by not considering the tax consequences when valuing the husband’s IRA in a divorce. This is important because without proper evidence, appellate courts will not change the valuation even if it doesn’t include tax impact. The Family Law Financial Affidavit form also requires listing possible assets and liabilities. The “imminent sale” doctrine, used in tax cases, has been rejected by federal courts and replaced with the “net asset value” method of valuation. In legal cases involving the valuation of closely held corporations, courts have ruled that future tax liability must be taken into account, even if there are no immediate plans to sell or liquidate the company’s assets. This means that when determining the fair market value of shares of stock, the potential capital gains tax that will eventually have to be paid on the company’s assets must be considered as a dollar for dollar reduction in value. This approach ensures a fair and equitable distribution of assets, even in divorce proceedings, and is based on the universal economic principles of fair market value. Overall, both federal and state courts have recognized the importance of considering tax consequences in asset valuation, regardless of imminent sale or liquidation plans. This is a column written by the Family Law Section. It provides information about different court cases and legal issues related to family law. The column is written by Jeffrey D. Fisher and Odette Marie Bendeck, who are lawyers specializing in family law. They share their expertise and knowledge on complex family law cases. Just to make sure all lawyers do their job well, help people, and keep learning about the law.

Source: https://www.floridabar.org/the-florida-bar-journal/beyond-the-imminent-sale-doctrine-valuing-assets-with-imbedded-tax-consequences/