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Statistically Distinguishing Between Active and Passive Appreciation

By Ashok Abbott

When divorce occurs, how do matrimonial attorneys deal with division of wealth that exists at the time of filing? Depending on state laws, very contentiously.

The combination of delayed marriages, considerable wealth being created pre-marriage, and an almost 50% rate of divorce, (6.8 marriages/3.5 divorces per 1000 population) brings an urgency to the issue of apportioning the active and passive components of the growth in value of the business during the marriage. This issue has been extensively litigated and the rulings generally state that increased value of separate property resulting directly from spousal efforts (active appreciation) becomes the property of the marital partnership, and increased value attributable to other external sources (passive appreciation) remains separate property. While the theoretical existence of passive appreciation has been recognized in most venues, a clear approach to distinguishing between passive and active components is not well defined and remains the playground of dueling business appraisers. Having the right business expert on your side ' well-armed with robust statistical tools ' can make an enormous difference in the outcome of the case.

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