The Florida Supreme Court adopted the reasoning of the First District Court of Appeal in its very recent decision in Kaaa v. Kaaa . There, the parties had been married 27 years. Before their marriage, the husband purchased a home for $36,000, making a down payment of $2,000 from his separate funds. The parties married soon thereafter. Although they refinanced the house several times, the wife’s name was never added to the deed. They used marital funds to pay the mortgage payments throughout the marriage, and they also used marital funds to renovate their carport.
At the time of their divorce, the trial court in the Tampa area determined that the house, still titled only in the husband’s name, was a non-marital asset, and that the wife was entitled to a one-half share only of the amount of the reduction in the mortgage balance and the value of the carport renovation, which was a total of $36,679. The husband was only ordered to pay to the wife the sum of $18,339, and the balance of the home’s present value of $225,000 was awarded all to the husband. Upon appeal to the Second District Court of Florida, the award was affirmed. However, the District Court certified a conflict with a decision of the First District Court of Appeal, and the Florida Supreme Court undertook to resolve the conflict.
Florida Statutes §61.075(5)(a)(2) [since renumbered to §61.075(6)(a)(1)(b)] provides that “The enhancement in value and appreciation of nonmarital assets resulting either from the efforts of either party during the marriage or from the contribution to or expenditure thereon of marital funds or other forms of marital assets, or both…” is a marital asset. The Second District Court of Appeal, however, had considered that the use of marital funds to pay a mortgage which encumbers a nonmarital asset would mean that the increase in net value of the non-marital asset due to the reduction the mortgage balance would be a marital asset, but NOT that any passive appreciation in value would become a marital asset.
In Kaaa, however, the Florida Supreme Court set out a five step test for a trial court to use to determine whether passive appreciation in value of the non-marital asset should be considered marital:
(1) Determine the overall fair market value of the home;
(2) Determine whether there has been any passive appreciation in value of the home;
(3) Determine whether the passive appreciation is a marital asset, which must include findings of fact by the trial court that marital funds were used to pay the mortgage and that the non-owner spouse made contributions to the property. Moreover, the trial court must determine to what extent the contributions of the non-owner spouse affected the appreciation of the property:
(4) Determine the value of the passive appreciation that accrued during the marriage and is subject to equitable distribution.
(5) Determine how the value is allocated. The Court specifically approved of the methodology espoused by the First District Court of Appeal in Stevens v. Stevens, 651 So. 2d 1306, 1307 (Fla. 1st DCA 1995): “…the portion of the appreciated value of a separate asset which should be treated as a marital asset will be the same as the fraction calculated by dividing the indebtedness with which the asset was encumbered at the time of the marriage by the value of the asset at the time of the marriage.”
Thus, if the balance of the mortgage encumbering a non-marital home at the time of the marriage was 90% of the value of the home, then the portion of the passive appreciation in value (if the other steps are satisfied) which should be considered a marital asset is 90%. Although this case specifically dealt with a marital home, there is no language in the opinion which would restrict this reasoning only to a marital home.