Passive Appreciation of Non-Marital Property

Most clients are not aware that passive appreciation of non-marital property can be considered a marital asset. A recent case from the Fourth District Court of Appeal dealt with this issue. In Burton v. Burton, the Wife owned property in North Carolina that she acquired prior to the parties getting married. In general, assets that are acquired prior to marriage are considered to be non-marital property and your spouse does not have a legal claim to that property. But, in Burton v. Burton, the appellate court held that passive appreciation in the non-marital property could be considered marital.

The Wife in Burton testified that the North Carolina property was worth approximately $13,500.00 when she purchased it before the marriage. Both parties agreed that the property was worth $46,837.00 when the parties divorce. The trial court ordered that the Husband should get credit for half of the mortgage payments he made during the marriage. The appellate court disagreed. The Appellate Court stated “Although Husband did not make any improvements to the property, a portion of the appreciated value should have been included as a marital asset.” The Appellate Court directed the trial court to apply a formula that we call the Kaaa calculation. It is as follows:

In the absence of improvements, the portion of the appreciated value of a separate asset which should be treated as a marital asset will be the same as the fraction calculated by dividing the indebtedness with which the asset was encumbered at the time of the marriage by the value of the asset at the time of the marriage. If, for example, one party brings to the marriage an asset in which he or she has an equity of fifty percent, the other half of which is financed by marital funds, half the appreciated value at the time of the petition for dissolution was filed should be included as a marital asset. The value of this marital asset should be reduced, however, by the unpaid indebtedness marital funds were used to service.

If you have property that you purchased prior to your marriage, it’s important that you contact your expert family law attorneys to discuss what legal rights your spouse might have to the proprety, if any.

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