Major assets, like homes, retirement plans, bank accounts, and the like generally increase and decrease in value over time for a multitude of reasons. The stock market may go up. As you work, you or your employer may contribute more to a retirement account. The housing market may experience a bubble, or a burst. Mortgages are paid down over time. All of these factors help assets, liabilities, and the resulting equity fluctuate during the marriage.
Florida Statutes 61.075 governs equitable distribution in a divorce case. In subsection 5 of that statute, the law describes "marital assets and liabilities" as including the enhancement in value and appreciation fo nonmarital assets resulting from either the efforts of either party during the marraige or from the contribution to or expenditure theron of marital funds or other forms of marital assets, or both. The Florida Supreme Court, in Kaaa v. Kaaa, 58 So.3d 867, held that this statute provides that under certain circumstances, the appreciation of a nonmarital asset is a marital asset.
In the Kaaa case, the asset in discussion is a home that the husband owned prior to the marriage. The husband purchased the home just before the marriage, and the parties paid down the mortgage throughout the marriage with marital funds. The court detailed a five step process to help parties determine whether the increase in value is marital.
If the value of the home appreciates during the marriage while marital funds are being used to pay the mortgage and the wife makes contributions to the home, the increase in value is marital. First, the court must determine overall current fair market value. Second, the court must determine whether there has been passive appreciation in value. Third, the court must determine whether the passive appreciation is a marital asset. The court must include findings of fact that marital funds were used to pay the mortgage and that the nonowner spouse made contributions to the property. The court must determine to what extent the contributions of the nonowner spouse affected the appreciation of the property. Fourth, the court must determine the value of the passive appreciation that accrued during the marriage and is subject to equitable distribution. Fifth, after the court determines the value of the passive appreciation to be equitably distributed, the court’s next step is to determine how the value is allocated.
If you have a question about marital or nonmarital assets in your family law case, give us a call.