A Spouse’s Right to Asset Appreciation of Separate Property in Divorce
When couples get married, each brings aspects of their single lives into the marriage, including previously-acquired property. Solely-owned assets do not necessarily directly benefit the marriage, but they can become a point of contention when property is divided in divorce. Unless the couples privately agree otherwise, each spouse will walk away with a share of the marital estate, so both are left with access to financial resources to rebuild their lives as single persons. Further, equity or fairness dictates that one spouse should not be able to reap all the rewards of a marriage when both contributed to the acquisition and appreciation of marital property. This concept is referred to as equitable distribution in Florida law, which says that an equal division of marital property is the presumed arrangement in divorce unless other factors indicate a different outcome is necessary to avoid an unjust result. However, property brought into the marriage is typically not subject to division, unless its value was enhanced by marital funds or the efforts of the non-owner spouse. The exclusion of separate property is not absolute, and becomes much more complicated when assessing the rights of a non-owning spouse to a share in the passive appreciation of a home owned solely by one spouse, but used as the primary residence by the married couple. The Florida Supreme Court issued a decision on the distribution of passive appreciation of this type of non-marital property in 2011, and a discussion of how this issue is evaluated by courts will be explored below.
When Passive Appreciation Becomes a Marital Asset
The home a married couple resides in is often the most valuable asset either owns, and in some marriages, the home predates the relationship and is titled solely in the name of one spouse. Under the rules of equitable distribution of marital property, this home would not be considered a marital asset because it was purchased with non-marital funds. However, it is not uncommon for a spouse to pay the mortgage on such homes with marital funds. In this situation, while the home itself cannot be divided, a portion of the home’s passive appreciation that accumulates during the time of the marriage could be. This distribution is permitted because marital funds enhanced the value of the asset, and thus the value added would be considered a marital asset. Note that the enhancement of the home does not have to be strictly monetary to create an interest for non-owning spouse, but some contribution that enhanced the value must be established.
Before a court can determine that passive appreciation of a home owned separately by one spouse is subject to division and the correct allocation, the judge must engage in a fact-driven analysis of the circumstances surrounding the satisfaction of the mortgage payments and other financial obligations related to the home. This evaluation requires the court to make the following assessments:
- the current fair market value of the home;
- whether there is passive appreciation of the home’s value;
- whether this appreciation is a marital asset, principally determined by the payment of the mortgage with funds earned or acquired during the marriage, and contributions to the home by the non-owning spouse through money, labor or improvements;
- the amount of the passive appreciation that accrued during the marriage; and
- how this amount should be divided.
The allocation of passive appreciation will depend on the value of the home at the time of the marriage and the percentage of the home’s purchase price that was financed. The greater the amount financed, which translates into a greater percentage of the marital funds that will be used to pay off the obligation, the more a non-owning spouse can claim as his/her rightful share.
Contact an Orlando Divorce Lawyer
Getting the correct allocation of marital assets is a pivotal issue in divorce, especially if there is concern about the status of property owned prior to the marriage. The Orlando law firm Donna Hung Law Group has years of experience guiding individuals through divorce, and knows how to analyze and break down the property settlement that is appropriate in a particular case. Contact the law firm at (407) 999-0099 to schedule a confidential consultation.