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Appreciation in Value of Nonmarital Real Estate and Business Interests
Enhanced Values During Marriage Can Sometimes Be Subject to Equitable Distribution
Generally speaking, when one Florida spouse owns real estate or a business interest, prior to the marriage – or inherits either type of property during the marriage – and leaves the property titled in his or her name, the asset remains nonmarital in nature, if the couple dissolves the marriage. As nonmarital property, it is not typically subject to the rules regarding equitable distribution after a divorce.
What about the appreciation or enhancement in the value of the asset during the marriage? Should that appreciation or enhancement in value be considered in a court’s equitable distribution determination? A number of factors come into play in answering that question.
If the appreciation in value is simply due to market forces or other passive forces, the appreciation will often continue to be characterized as nonmarital property.
Appreciation Partially Due to Use of Marital Funds
On the other hand, where the appreciated asset – a house, for example – is encumbered by a mortgage and that mortgage is paid out of marital funds, the appreciation can take on a different character; it can usually be included as marital property on the grounds that the enhancement represents the commingling of marital property.
For example, if one of the spouses purchases a home for $200,000 using $50,000 of his or her own money to make the down-payment prior to marriage, then takes out a mortgage in the amount of $150,000 paid out of marital funds, 75 percent of the home would generally be considered marital property ($150,000 divided by $200,000).
Appreciation or Enhancement Due to “Marital Labor”
The expenditure of marital funds is not the only way that an enhancement in value can become marital property. It can also occur where one of the spouses “expends” or contributes “marital labor” to the asset. For example, in one case, Dunagan v. Dunagan, 684 So.2d 68 (Fla. 1st DCA 1995), on the date of the marriage, the husband owned an interest in a closely held corporation that was controlled by the husband’s father. The husband was employed as general manager of the corporation, but the evidence suggested that his father made all important decisions. The trial court held that the enhanced value of the business was nonmarital property since the husband had no say in the management of the company. The appellate court reversed, noting that the husband’s “marital labor” enhanced the value of the business in spite of the father’s control. The Court indicated that the enhancement in value should be included in the marital property, which is subject to equitable distribution.
Equitable Distribution is Fact-Driven
One should bear in mind that, with regard to equitable distribution of the marital estate at the dissolution of a marriage, the particular facts involved in the couple’s financial are always important. Not only are the facts of each case unique, but there is also some variation in how the courts in each of the various Florida judicial districts interpret the equitable distribution rules. In all cases, the court attempts to come to an equitable division of assets. What is equitable in any particular situation can be subject to interpretation and negotiation. Where so much is at stake, it is advisable to find one’s way through the dissolution process with the assistance of experienced legal counsel.
McMichen, Cinami & Demps represents clients throughout central Florida in divorce, custody, child support, and all other family law matters. We have more than 50 years of combined experience protecting the rights of individuals going through divorce. We can give you an honest assessment regarding each element of your divorce.