The Interplay of Real Estate And Family Law
I often find myself before potential and current clients who owned real property in his/her name individually prior to saying their infamous I dos. I say infamous because I am a family law attorney after all; if you’re speaking to me, it’s fair to say that death is not the one parting your marriage, but I digress…
Take Claire, a former client, who incorrectly believed that because she owned real property before her marriage, the real property is non-marital and should not therefore be subject to equitable distribution.
Although this is sound reasoning, issues in family cases are rarely so neat. For instance, what happens when Claire and her husband use marital funds to pay down the mortgage of the non-marital real property? Does the non-owner spouse (Claire’s husband), who actively contributed to the paying down of the mortgage, not entitled to anything at the time of dissolution? Is he only entitled to the active appreciation, or is he limited to receiving passive appreciation? Or is he entitled to both?
Well, existing statutory and case law has discussed and held on those issues intensively, and on July 1, 2018, HB 639 was signed codifying existing caselaw (with notable additions/deletions).
Welcome the new Equitable Distribution Statute, also known as Florida Statute 61.075(6)(a)(1)(c) which went into effect on July 1, 2018 resulting in evenhanded allocation of marital and non-marital elements of the passive appreciation of non-marital real property.
Florida Statute 61.075(6)(a)(1)(c) reads as follows:
(6) As used in this section:
(a) 1. “Marital assets and liabilities” include:
c. The paydown of principal of a note and mortgage secured by nonmarital real property and a portion of any passive appreciation in the property, if the note and mortgage secured by the property are paid down from marital funds during the marriage. The portion of passive appreciation in the property characterized as marital and subject to equitable distribution is determined by multiplying a coverture fraction by the passive appreciation in the property during the marriage.
(I) The passive appreciation is determined by subtracting the value of the property on the date of the marriage or the date of acquisition of the property, whichever is later, from the value of the property on the valuation date in the dissolution action, less any active appreciation of the property during the marriage as described in sub-subparagraph b., and less any additional encumbrances secured by the property during the marriage in excess of the first note and mortgage on which principal is paid from marital funds.
(II) The coverture fraction must consist of a numerator, defined as the total payment of principal from marital funds of all notes and mortgages secured by the property during the marriage, and a denominator, defined as the value of the subject real property on the date of the marriage, the date of acquisition of the property, or the date the property was encumbered by the first note and mortgage on which principal was paid from marital funds, whichever is later.
(III) The passive appreciation must be multiplied by the coverture fraction to determine the marital portion of the passive appreciation of the property.
(IV) The total marital portion of the property consists of the marital portion of the passive appreciation, the mortgage principal paid during the marriage from marital funds, and any active appreciation of the property during the marriage as described in sub-subparagraph b., not to exceed the total net equity in the property at the date of valuation.
(V) The court shall apply the formula specified in this subparagraph unless a party shows circumstances sufficient to establish that application of the formula would be inequitable under the facts presented.
In layman’s terms, the new statute creates a new formula to gauge the marital share of the passive appreciation of real property when a mortgage has been paid down during the marriage with the use of marital funds. Again, this means that a non-owner spouse (spouse that is not on title) should be entitled to a portion of the passive appreciation (an increase in the value of an asset as a result of changes in the market) on the non-marital real property when the real property is encumbered by a mortgage and that mortgage is paid down using marital funds.
The new statute codifies the law that was already in existence that a non-owner should not have to actively participate (active appreciation: results from marital efforts is marital property) to be entitled to passive appreciation; simply paying down the mortgage with marital funds is sufficient. The new statute further codifies that both active and passive appreciation need not occur in order to be entitled to passive appreciation.
So do not be passive in the divorce proceedings; be active even if you’re simply seeking the granting of the passive.