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Divorce valuation: active vs passive appreciation

On Behalf of | May 18, 2022 | Divorce

The financial aspect of divorce in Illinois is often the most contested element, especially if there are significant assets involved. One key consideration is deciding between active and passive appreciation for assets that one partner owned during the marriage and what that difference means for the division process.

Passive appreciation

If an asset that one of the partners owns is deemed “marital,” that means that it was created or significantly improved during the marriage, and therefore, it is up for grabs in the asset division phase. One of the key ways to make this determination is to decide if it went through active or passive appreciation. In passive appreciation, the asset existed before the marriage, and it grew in value in the background, without much work by either spouse, so the marriage did not affect the trajectory of its growth. This could be something like a savings account where the rate of savings was constant before and during the marriage.

Active appreciation

On the other hand, an active appreciation asset did take considerable work to grow. This might be something like a business that one of the spouses founded during the marriage. In this case, the asset is considered marital and should be divided as part of the financial settlement. For an asset that is large and important, this can significantly change the calculations for where the financial settlement ends up and the business interests in the divorce, so counting assets in the right way between passive and active appreciation is key.

Having a favorable outcome in the financial settlement of a divorce may well involve arguing active versus passive appreciation for major assets before the judge.