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The Florida Supreme Court’s precedential decision last Thursday in Kaaa v. Kaaa, No. SC09-967, could make life a bit more complicated Florida family lawyers.  Just what you needed, I’m sure!

The Court denied a petition for rehearing, and revised its September opinion, in an attempt to clarify a pretty confusing discussion.  The basic holding, which I think counsels a fairly common sense analysis of who owns what, remains unchanged. 

Here’s a thumbnail sketch of the facts:  

Mr. Kaaa bought a house for $36,500 just before marrying Mrs. Kaaa, put $2000 down and mortgaged the rest.  He was was the sole owner on the property deed.  Mr. and Mrs. K were married for 27 years, and like most couples, they used their marital funds to make mortgage payments.  They also used marital funds to improve the property by $14,400.  The Kaaas owed a little less than $13,000 in mortgage debt on the property at the time of distribution, having refinanced a few times.  The property had a stipulated value at that time of $225,000.

Here’s the Legal Issue

The house itself is non-marital property because Mr. K bought it before the marriage and held it in his own name.  But marital funds paid for all but $2000 of the house (that was also disputed) and enabled the Kaaas to continue living in the house and enjoy a tremendous value increase as a result of market forces.  Does Mr. K’s $2000 down payment entitle him to keep the $207,000 of the $225,000 present value of house?  The 2nd DCA (in Lakeland) said yes.  But under Stevens v. Stevens, a 1995 decision of the 1st DCA (in Talahassee), the answer would be no.  The Florida Supreme Court came down on the side of the 1st DCA.   

Here’s the Court’s Reasoning:

The Equitable Distribution Statute, Fla. Stat. §61.075, says “appreciation of nonmarital assets” is marital property if the appreciation is attributable to “the efforts of either party during the marriage” or “the contribution to or expenditure thereon of marital funds…”  Price increases due to market forces do not result from anyone’s efforts (in the way that, say, a value increase attributable to an addition that Mrs. K built herself would).

“Contribution[s] to or expenditure[s] thereon of marital funds” could be thought to refer to value increases resulting from actual improvements to the property that, instead of being created through the non-owner spouse’s efforts, are paid for with marital funds (as where the Ks use marital funds to pay a contractor to build the addition instead of having Mrs. K build it herself).  But the Supreme Court rejected that reading of the statute, finding that the literal meaning of the phrase also includes “expenditure…of marital funds” to make mortgage payments.  The Court particularly noted that equitable distribution is the default rule, and it was inclined to read ambiguous language in that light.  

Here’s the Rule:

Appreciation of nonmarital property that results solely from market fluctuations (which the Court referred to “passive appreciation”) can be marital property if:  (1) “marital funds were used to pay the mortgage”; and (2) “the nonowner spouse made contributions to the property”.  Once it is determined that a non-marital property’s value passively appreciated during the marriage and criteria (1) and (2) above are satisfied, trial courts should calculate how much of the appreciated value is subject to equitable distribution based on the percent of the property that was held unencumbered by the owner spouse at the time of the marriage. 

So, for example, suppose Mr. K had held equity equal to 50% of the property’s value at the time of marriage, with 50% mortgaged.  If the property value had increased by $100,000 during the marriage, $50,000 would be subject to equitable distribution, and the remaining $50,000 would go to Mr. K as his non-marital property.  The amount subject to equitable distribution is further reduced by any debt obligations remaining on the property.  So in this example, if the Kaaas still owed $40,000 on the mortgage, only $10,000 would be subject to equitable distribution.