At which point are assets constituting marital property appraised during settlement?
Authors: JUDr. Lukáš Duffek, Mgr. Barbora Šimková
In a recent decision (Ref. No. 22 Cdo 1205/2019), the Supreme Court dealt with the issue of valuation of marital property (MP) for the purpose of settlement in court with the application of Act. 89/2012 Coll., the Civil Code (CC).
The Court held that the settlement of MP must be based on the usual price of an item at the time when the court is deciding on the settlement of MP, which is estimated with regard to the state of the asset at the moment of MP settlement (i.e. at the same moment).
Thus, the Supreme Court deviated from its previous decisions that had dealt with MP settlement pursuant to the “old” Civil Code. According to those decisions, though the settlement of MP had to be based on the price of an asset at the moment of MP settlement, it depended on the MP’s state at the moment when it was extinguished (typically by divorce).
The Court referred to Section 740 of the CC, which stipulates that if the spouses fail to agree on a settlement, either of them may apply to the court for a decision. According to the meaning of this provision, the settlement is decided by the court based on the state of the MP at the time when the reduction, cancellation or extinction of the MP became effective. The Court could have continued to make decisions referring to its previous practice by merely using a different grammatical interpretation, but instead in the decision above, interpretation was not deemed sufficient and the Court judged the provision with regard to its meaning and purpose.
Thus, it held that when judging the point when the MP is to be appraised for the purpose of settlement, it is necessary to take account of the fact that in the period between extinction (reduction) and settlement of MP (typically, by the court’s decision), the asset may be revalued or devalued. An asset may be devalued due to its having been used or due to other facts, e.g. due to encumbrance, the influence of a third party’s actions, by an accident, etc. Therefore, MP settlement must be based on the usual price of an asset estimated with regard to its state at the moment of settlement.
The Supreme Court emphasized that spouses are de facto the co-owners of an item until the MP is settled, so they both have to bear the consequences of revaluation or devaluation. Only after the settlement would one of the former spouses acquire the exclusive right to the property, i.e. starting from this moment, it is the spouse to whom an asset is transferred who acquires the full ownership and can sell the asset regardless of the other (former) spouse.
Thus, in our opinion, the assessment of an asset at the moment of MP settlement would lead to a fairer distribution between former spouses of the assets constituting MP. The proceedings on MP settlement as a rule last several years, like most court proceedings in the Czech Republic. If a marriage is dissolved by divorce, the spouses have 3 years to settle their MP, that is, to come to agreement or to submit a petition. It is not uncommon that a petition is submitted just before the time limit expires. Apparently, to discover in what state the item was several years before (e.g. often even more than 5 years earlier) is a highly complex discipline not only for the participants in the proceedings, but also for the experts, who as a rule also have to appraise the items for MP settlement. If in the period between extinction and appraisal of the MP there have, for instance, been floods that devalued the property, the task becomes nearly impossible to perform.
How the above new rule will be put into practice remains a question. If it would lead the former spouses to make an effort to agree on MP settlement, this would definitely be a step in the right direction. Also, if the spouses fail to agree, it is certainly advisable to submit a petition for settlement as soon as possible after extinction of the MP so that ownership issues are resolved as soon as the partnership is dissolved.