Halloween – ‘Kaaaaaaaaaaaaaaah!’

The scary implications of codifying Kaaa v. Kaaa for nonmarital property owners, part 1

When a spouse brings preowned real estate into marriage, does not add the other spouse to the title and later divorces, the nonmarital property owner may think that he or she will and should get the passive increase in market value when divorce occurs down the road.

Put differently, that little house you bought when you were single for $80,000, lived in for 20 years with your spouse and sold for $200,000 when you then divorced … shouldn’t the $120,000 passive increase in value go into your pocket? After all, its your house.

Boo! Not necessarily … it depends. Did you pay down the mortgage with you or your spouse’s wages earned during marriage? Those funds were marital property. It’s complicated.

Basic equitable division

In a Florida divorce, property is first sorted into two piles: marital and nonmarital.

Nonmarital property is separate property a spouse owned before marriage or received as an individual by gift or inheritance. Nonmarital or separate property remains the sole property of the ex-spouse-owner after divorce.

Marital property is anything either spouse or both together acquired during the marriage that does not fall under the definition of separate property. The court applies the “equitable distribution” standard when dividing marital property under Florida law, meaning a fair division, which is not necessarily a 50-50 split.

Classification as nonmarital or marital property is not always so basic. What about passive appreciation of nonmarital real estate during marriage when marital funds paid down the mortgage? What?! The very concept is frightening …

Consider this situation. A future spouse owns mortgaged real estate, which enters the marriage as their nonmarital property. Then, marital funds are used to pay down the mortgage. By the time of divorce, the property has increased in value, a passive appreciation through market-driven inflation. (There can also be active appreciation like using marital funds to make a measurable improvement to the real estate, but we will keep it simpler.)

In this scenario, does some or all the passive appreciation in the nonmarital property during the marriage become marital property subject to equitable division? It is this scenario that the Florida Supreme Court faced when it decided the case of Kaaa v. Kaaa in 2010.

We will tell readers what happened next in tomorrow’s blog post. Don’t have nightmares over it …

 

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  • The Law Office of Daniel E. Forrest represents individuals in Fort Lauderdale in high-asset divorce matters. Daniel Forrest is board-certified family lawyer and mediator serving the South Florida area.
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