Legal Definitions - valuation date

A valuation date is the specific point in time chosen to determine the monetary worth of an asset, liability, or an entire business. This date is critical because the value of most things can change over time, and a consistent reference point is needed for legal, financial, or tax purposes.

Here are some examples illustrating the application of a valuation date:

• Example 1: Property Division in a Divorce

  When a married couple decides to divorce, they often need to divide shared assets like their family home, investment portfolios, or retirement accounts. A court will typically set a valuation date, which might be the date the divorce petition was filed, the date of separation, or another agreed-upon date. For instance, if the couple's investment portfolio was worth $500,000 on the chosen valuation date, that is the value used for division, even if market fluctuations cause its value to change before the divorce is finalized. This ensures fairness by using a consistent snapshot in time.

• Example 2: Estate Settlement for Inheritance Tax

  When an individual passes away, their estate (all their assets and liabilities) must be valued to determine potential inheritance taxes and how assets will be distributed to heirs. The primary valuation date for an estate is typically the date of the person's death. All assets, such as real estate, bank accounts, and personal belongings, are assessed based on their market value on that specific day. This provides a clear and consistent basis for calculating tax obligations and ensuring equitable distribution among beneficiaries.

• Example 3: Business Acquisition Agreement

  Imagine a larger corporation is acquiring a smaller tech startup. As part of the acquisition agreement, they will specify a valuation date for the startup's assets, intellectual property, and outstanding liabilities. This date might be the day the acquisition deal was signed, or a specific date prior to closing. The financial statements and asset appraisals will then be prepared based on their worth as of that valuation date, forming the basis for the agreed-upon purchase price. This prevents disputes over fluctuating values during the often lengthy negotiation and closing process.