Litigation + Valuation Perspectives

Demystifying Valuation, Economic Damages + Forensic Accounting

Arizona Law Changes Regarding Prejudgment Interest

When we perform calculations of economic damages for litigation purposes, there is often a component of past business loss or other type of historical economic loss.  Most experts will bring those historical losses to present value terms, using a prejudgment rate of return to make the injured party whole for past damages.  Although there are different views among financial experts regarding what is the appropriate rate of return to apply to historical damages, in many instances the allowable rate of return is established by a statute which defines the rate of prejudgment interest.

In Arizona, last year the legislature modified the statute  relating to interest rates on judgments.  Previously, the law provided for a ten percent per annum rate (unless another rate was agreed to in writing.)  The modified law mandates that the interest rate be set to the lesser of 10 percent per annum or at a rate per annum that is equal to one percent plus the prime rate per annum as of the date of judgment, (unless specifically provided for by contract or statute).  The modified statute also precludes awards of prejudgment interest “for any unliquidated, future, punitive or exemplary damages that are found by the trier of fact.”   As financial experts, we consult with counsel before calculating interest relating to economic damages to ensure that the rate is appropriate given the facts of the case and does not violate any laws.

The modified statute is applicable to judgments made or entered into on or after July 20, 2011.  The current prime rate is 3.25 (and has been since December 2008) ; therefore, the current statutory rate would be 4.25% under the modified statute.  This is significantly less than prior statutory rate of ten percent.

Henry+Horne

Comments

  1. Fo Scho says:

    So if I have Family Court – Dissolution Claims dated 10-13-10 then they are still at the 10% rate? Does that to pertain to Support only? How about equalization judgments? 10% still?

    • admin says:

      Thank you for your question and interest in our blog. You would need to consult your attorney regarding the applicable interest rate for your specific case.

      Melissa E. Loughlin-Sines, CPA, CFE, CVA, CFF, ABV