A major issue in dissolution of marriage cases in Florida is whether a property will be categorized by the court as “marital.” If the property was purchased by one spouse before the marriage, using his/her own money, what can happen during the marriage to cause the passive appreciation of marital property in Florida to subject the property to equitable distribution in divorce? What can happen to cause the active appreciation of marital property in Florida that would make it subject to equitable distribution? Let’s look to Florida statutory and case law to find out the answer.
Definitions and Examples of Passive Appreciation of Marital Property in Florida, and Active Appreciation of Marital Property in Florida
Let’s define passive appreciation in practical terms to make it understandable. Passive appreciation of marital property in Florida occurs during the marriage. Passive means that there are no significant improvements or contributions made to the appreciation (increase in its value) of the property by the non-owning spouse, and any value enhancement is due exclusively to market factors, timing, or other independent events/trends. Timing is critical in real estate. In this article, we will also contrast passive appreciation with active appreciation of marital property in Florida.
Active appreciation of marital property in Florida occurs when the spouse who did not own the property before marriage, makes labor and/or financial contributions that cause the increase in the value of the property.
Let’s use a hypothetical example for this to make sense. Here is an example of passive appreciation of marital property in Florida:
- Party A buys a condo in downtown Orlando in 2011. Party A meets Party B in 2012, and in 2013 after a lovely courtship, they get married.
- The spouses separate in December 2018 as their marriage is irretrievably broken.
- During their marriage, the value of Party A’s condo increased because the housing market has been on fire.
- No major improvements were made to the property, and Party A simply sat back and collected rent from the property prior to the date of their marital separation.
Is this condo subject to being categorized as “marital property due” to the passive appreciation of marital property in Florida? Case law and Statutory law provide that “passive appreciation on nonmarital assets as a result of market forces, such as inflation, is not subject to division.” We can add other facts, such as the commingling of the proceeds in a joint marital bank account, but for our basic example, there is likely no creation of marital property here.
Active appreciation of marital property in Florida, as discussed above, occurs when the spouse that does not own the nonmarital property, actively takes steps to increase the value of the property. Here is another hypothetical that can help clarify how active appreciation works.
- Party A buys a condo in downtown Orlando, and it has a great view of the City.
- Party A meets Party B one year later, and they get married.
- Market factors cause the value of the property to increase substantially.
- During their marriage, monies from a joint bank account in the name of both parties, were used to pay down the mortgage on the Condo.
- Party A and Party B split in January 2019, and file for dissolution of marriage.
Florida Statute §61.075(6)(a)1(b), states that marital assets include the: “enhancement in value and appreciation of nonmarital assets resulting either from the efforts of either party during the marriage or from the contribution to or expenditure thereon of marital funds or other forms of marital assets or both.” Contributions by either spouse to the increased value of the other spouse’s nonmarital property may create a legal right to the equitable distribution of the property in divorce. But wait, there is a catch! The Florida Supreme Court said this: “Improvements or expenditures of marital funds to a nonmarital asset does not transform the entire asset into a marital asset; rather, it is only the enhancement in value and appreciation which becomes a marital asset. F.S. § 61.075(5)(a)(2).” Kaaa v. Kaaa, 58 So. 3d 867 (Fla. 2010).
Therefore, in the example above, it is likely there has been some active appreciation of marital property in Florida, but the Court will need to make a finding as to how much the property appreciated in value, and how much the non-owning spouse may be entitled to. “Appreciation caused by the expenditure of marital funds or labor during the marriage, including the parties’ management, oversight, or contribution to principal, is a marital asset subject to equitable distribution.” Here are some cases that predate Kaaa v. Kaaa, but provide a great deal of insight and guidance: Young v. Young, 606 So. 2d 1267 (Fla. 1st DCA 1992); Massis v. Massis, 551 So. 2d 587 (Fla. 1st DCA 1989); Straley v. Frank, 612 So. 2d 610 (Fla. 2d DCA 1992); Jahnke v. Jahnke, 804 So. 2d 513 (Fla. 3d DCA 2001); and Hanks v. Hanks, 553 So. 2d 340 (Fla. 4th DCA 1989). Dyson v. Dyson, 597 So. 2d 320, 324 (Fla. 1st DCA 1992); Mitchell v. Mitchell, 841 So. 2d 564 (Fla. 2d DCA 2003); Adkins v. Adkins, 650 So. 2d 61, 67 (Fla. 3d DCA 1994); and Cole v. Roberts, 661 So. 2d 370, 372 (Fla. 4th DCA 1995).
Case Law on Passive Appreciation of Marital Property in Florida, Active Appreciation of Marital Property in Florida
Kaaa v. Kaaa, 58 So. 3d 867 (Fla. 2010). The title itself may create for good humor, but the ruling is quite serious for divorce litigants despite the negative treatment the case has received by many District Courts of Appeal. The Florida Supreme Court held in Kaaa that the Wife would be entitled to include the value of the passive appreciation of the house in the calculations for equitable distribution in order to avoid the Husband enjoying an unjust enrichment of the Wife’s contributions to the marital residence. This decision means that a non-owner spouse may recover from the equity of a home in equitable distribution. While the non-owning spouse would not be able to include the entire value of the marital residence as marital property, the Kaaa decision (as mentioned above) allows the non-owning spouse to recover a portion of their contributions to the increase in valuation of the real property during the marriage.
Jonathan Jacobs, Esq., is managing partner at the Jacobs Law Firm, PLLC. He is a divorce attorney in Orlando Florida, a divorce attorney in Clermont Florida, and a relocation attorney in Orlando. Call (407) 310-5636 with questions about your divorce case.
What are the Florida residency requirements for divorce?