The impacts of market movements on a prolonged divorce matter
Recent rate cuts have sparked renewed attention on how shifting market conditions can influence property settlements, especially in the context of family law. Timing can be crucial when a divorce settlement is prolonged over a long period. Changes in asset values, whether property, shares, business, or other investments, can significantly affect the net asset pool, which is the foundation for determining a just and equitable division of property.
Impact on Real Estate Property Values
Property is often the most substantial asset in a family law dispute. Real estate values can shift dramatically due to economic cycles, interest rate changes, or local market conditions. If proceedings are delayed:
- Appreciation or depreciation of the home or investment property can alter the total value of the asset pool.
- Capital growth may benefit the party in possession, while losses may unfairly burden them.
- Post-separation contributions may be made by one party who continues to pay the mortgage or invest in improvements. The court may need to consider these contributions along with market-driven changes.
- Neglected maintenance during a prolonged dispute can deteriorate the property's condition and reduce its value, potentially causing further conflict.
Business Valuations
If a family business is part of the asset pool, its value may fluctuate due to:
- Economic conditions (e.g., COVID-19 impacts, inflation)
- Revenue growth or decline
- Operational changes or investments post-separation
Business valuations often involve subjective judgment and future earnings projections, making them particularly volatile over time. Courts may factor in:
- Whether a party has continued running the business
- Any efforts made to grow or stabilise it
- The fairness of attributing gains/losses entirely to one party
Q&As
How does market volatility come into play in prolonged family law settlements?
In a prolonged property settlement matter, volatility affects:
- The size of the asset pool: A property or investment may gain or lose significant value between separation and final settlement.
- The timing of settlement: Delays may create advantages or disadvantages depending on how values move.
- Perceptions of fairness: One party may feel unfairly treated if values change in the other’s favour after completing valuations.
Do you need to redo the valuation if the market changes?
Yes, often you do.
Valuation reports reflect a point-in-time assessment. If there has been:
- A significant time lapse since the valuation
- Noticeable market movement (up or down)
- New information that affects the value (e.g., interest rate hikes, zoning changes)
…it is prudent, and sometimes necessary, to obtain an updated valuation or request the valuer to confirm whether the original figure still reflects market value.
What are the costs of redoing valuations or obtaining market updates?
Costs vary depending on the type of asset, whether it is a complete valuation or an update to a recent valuation. Please reach out to us for a quote.
What makes it difficult to determine fair property values when market conditions are in flux?
Timing Uncertainty
Valuations may quickly become outdated, especially during economic shocks (e.g., COVID-19, inflation spikes, interest rate changes).
Strategic Disputes
Parties may disagree on whether values have changed or the most accurate valuation. This often leads to duelling experts or requests for single expert appointments.
Disproportionate Risk
One party may bear more risk if they retain a volatile asset (e.g., shares or a business), while the other receives cash or stable property.
Post-Separation Contributions and Efforts
When one party manages an asset through volatile conditions (e.g., keeps a business afloat), separating their efforts from pure market movement can be difficult, complicating assessment of entitlements.
Delay Impacts
Procedural or tactical delays can create unfairness if asset values change significantly before the case is resolved.
Best Practices in Volatile Conditions:
- Monitor asset values regularly
- Document post-separation changes and efforts
- Engage valuers early and update as needed
- Consider requesting interim orders or a single expert valuation to minimise conflict
- Act promptly to reduce financial exposure to market changes