Nonmarital Real Estate: Is the Appreciation Marital, Nonmarital, or a Combination of Both?

In Florida, when a spouse owns property before marriage or inherits it during marriage and keeps it in their name, the property is considered nonmarital. Any increase in value during the marriage is considered marital property and may be subject to distribution in a divorce. However, if the property increases in value without the use of marital funds or labor, it may not be subject to distribution. Different Florida district courts of appeal have different approaches to determining how the appreciation of nonmarital real estate should be distributed in a divorce. The First, Third, Fourth, and Fifth districts use an “apportionment” approach, where they divide the appreciation between the parties based on their contributions. The Second District has a more restricted view and only allows the nonowner spouse to share in the mortgage pay down that occurred during the marriage, not the market force appreciation of the property.

In the First District, marital funds servicing the debt of a nonmarital asset make it partially marital. Once marital funds are shown to have been contributed, the appreciation of the asset is divided using an “apportionment” or “proration” method.

In simple terms, different Florida courts have different ways of deciding how to split the increase in value of nonmarital property in a divorce, depending on whether both spouses contributed to the property. In simple terms, if one person brings an asset to a marriage and part of it was paid for with money from the marriage, then only the appreciated value of the part not paid for with marital funds should be considered a marital asset. For example, if someone buys a house for $200,000 before getting married and puts $50,000 down, then the appreciation of the house would be divided based on the value of the house at the time of the marriage. According to the Stevens’ analysis, if a house goes up in value during a marriage, at least 75 percent of that increase is considered a joint asset that should be shared between the husband and wife if they get divorced. For example, if a house goes up in value by $100,000 and is worth $300,000 when the couple files for divorce, the non-owner spouse would get $37,500 of that increase, and the owner spouse would get $62,500. This is because both spouses contributed to the house, either through paying the mortgage or improving the property. If the owner spouse can’t prove that some of the increase isn’t from their own efforts, then the whole increase is considered a joint asset. In divorce cases in Florida, courts use an “apportionment” approach to divide assets between spouses. This means that if an asset increases in value during the marriage, both spouses are entitled to a fair share of that increase. The courts also consider any contributions made by each spouse, whether it’s from their own money or from marital funds, when deciding how to divide the increased value of the asset. This helps to ensure that both spouses get a fair return on the investments they made during the marriage. The Third District applies the same rules as the First District when it comes to dividing property in a divorce. In two cases, Herrera v. Herrera and Yitzhari v. Yitzhari, the court found that if marital funds or labor were used to improve a spouse’s property, then that property is considered a marital asset and should be divided equally in a divorce. The Fourth District has had some uncertainty in its rulings on this issue. In some Florida court cases, there have been different rulings on how to divide property when a married couple divorces. In one case, the court divided the increase in value of real estate based on a specific formula. In another case, the court only gave the non-owner spouse half of the money that had been used to pay off the mortgage on a property. In a third case, the court said that if a non-marital property has a mortgage and the couple used their money to pay off the mortgage, then the property becomes marital property. These different rulings are hard to explain, especially because the facts in the cases are not so different. In the Barner v. Barner case, the Fourth District Court ruled that marital funds used on nonmarital property may or may not convert the appreciation into a marital asset. In Reyes v. Reyes, the court ordered the trial court to consider if the mortgage and improvements were made with marital funds, and in Caruso v. Caruso, the court incorrectly referred to the nonowner spouse’s claim to appreciation of nonmarital asset as “special equity.” It’s not clear if the Fourth District court would follow the Oldham case or use a different approach. Two later cases, Chapman v. Chapman and O’Neill v. O’Neill, suggest that the Fourth District might be open to dividing the increase in value of nonmarital assets. However, these cases don’t talk about real estate. In cases involving property in the Fifth District Court of Appeal, it seems that when a spouse brings in property they owned before the marriage, they can keep the original value. But any increase in value or appreciation during the marriage will be divided between the spouses. This was seen in the cases of Maselle v. Maselle and Thomas v. Thomas. In these cases, the court ruled that the increase in value or equity of the property during the marriage should be divided equally between the spouses, even if the property originally belonged to one spouse before the marriage. The burden of proof is on the owner spouse to show what money, if any, was put into the property before the marriage. In the case Becker v. Becker, the court said that if a nonmarital asset goes up in value because of market conditions, that increase in value becomes a marital asset. But in this case, a nonmarital office building’s increase in value wasn’t considered a marital asset because money from a nonmarital source was used to pay off the mortgage. If marital money had been used for the mortgage, the increase in value would have been split between the spouses. The court referred to other cases, but it’s not clear how the Fifth District would handle the situation. It’s uncertain if they would split the increase in value, or if it would all be given to one spouse. There was a famous case called Sizemore v. Sizemore in the Fifth District that said if a married couple’s work made something valuable, they should both get part of the value, even if most of the increase came from passive inflation. But that case was about stocks, not real estate. Another case called Thomas said that once you show that marital money was used on something that one spouse owns, that spouse has to prove how much of the money used was theirs. If they can’t prove it, then the whole increase in value has to be divided. This means that the Sizemore case probably doesn’t apply to real estate. In the case of Mitchell v. Mitchell, the Second District Court of Appeal disagreed with the approach taken by other districts in Florida regarding the division of marital and nonmarital assets in divorce cases. The court ruled that if the increase in value of a nonmarital asset is due to market forces or inflation, then the contribution of marital funds does not make the entire appreciation subject to division. Other districts, such as the First, Third, and Fifth, have a different approach and require the owner spouse to prove what portion of the increase in value is nonmarital. The disagreement between the districts creates confusion and inconsistency in how marital assets are divided in divorce cases. In some parts of the state, there’s no clear rule on how to divide the increase in value of a house if it was owned by one person before they got married. This makes it really hard for lawyers to give advice to their clients. The First and Third districts have the fairest way of dividing the increase in value. The owner gets credit for their initial investment and some of the increase, while the non-owner gets some of the increase too, based on their contributions during the marriage. It doesn’t make sense for one partner to get all the increase in value if the other partner helped pay the mortgage. This is a list of court cases from Florida about how to divide property in a divorce. The cases explain how to divide property that was owned before the marriage, as well as property that was acquired during the marriage. It also talks about how to calculate the value of the property and the appreciation of the property during the marriage. It’s important to understand these rules if you are involved in a divorce and need to divide property. Nichols & Ahmed, P.A. is a law firm in Daytona Beach.

Source: https://www.floridabar.org/the-florida-bar-journal/nonmarital-real-estate-is-the-appreciation-marital-nonmarital-or-a-combination-of-both/