How courts treat or divide a marital home purchased before the marriage
Marital home purchased before the marriage and paid in full prior to the marriage
A premarital home is one that was bought prior to the marriage that is titled only in the purchaser’s name. First word of advice, do not put your spouse’s name on the house at any time if you do not want to divide it equally with him/her should you divorce. If at any time you place your spouse’s name on the house, it becomes a marital asset that is divided equally no matter the facts or circumstances. You could have bought the house 20 years prior to the marriage and paid for it in full prior to the marriage. Once you place your spouse’s name on that deed, you have provided them with a very generous gift. This cannot be reversed.
Marital home purchased before the marriage while both parties are residing together, both parties contribute to the mortgage, but the house is in only one party’s name.
If you are in this situation, even if you have made the down payment on the house, if your home is not on the deed, this is considered the pre-marital home of your spouse. The reason this is significant is in the case of divorce, no matter how much money, time, or love you have put into this home, you cannot be legally awarded this home in a divorce. You may be awarded some of the equity as and for equitable distribution, but you can never be awarded the home itself because it is your spouse’s premarital property.
When do you have to divide the equity in a premarital home if the home is not paid in full at the time of marriage?
First, pursuant to Florida statute, the Court must start with the premise that everything must be divided equally unless there is justification for an unequal distribution. The contribution of a spouse to the enhancement of non-marital property is one factor that the courts can take into consideration when determining whether to divide assets equally or unequally.
The Court may only divide marital assets. In general, marital assets are assets acquired or purchased during the marriage, using funds earned or acquired during the marriage. Also included in the definition of marital assets are “the enhancement in value and appreciation of non-marital 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.” See F.S.A. 61.075(6)(a)b
So, if you have a premarital home that is not paid for at the time of marriage i.e. it is encumbered by a mortgage, and you are paying for the mortgage with money you have earned during the marriage, you are increasing the value of the marital home or the equity of the home with the “contribution or expenditure of marital funds” pursuant to F.S.A. 61.075. This increase in value is marital. It does not change the character of the asset itself. In other words, the spouse cannot be awarded the home itself, just a portion of the increase in value. The question is, how much of the equity of the premarital home are you required to divide with your spouse?
How much of the equity of the premarital home are you required to divide with your spouse?
The leading case on this issue is Kaaa v. Kaaa, 58 So.3d 867 (Fla. 2010). This is a case decided by the Supreme Court of Florida in 2010. Prior to this case, courts of the State of Florida were in conflict over the issue of whether passive appreciation that accrues during the marriage is subject to equitable distribution even though the asset is non-marital. Kaaa v. Kaaa decided this matter. The Kaaa’s were married for twenty-seven years. Six months prior to the marriage, Mr. Kaa bought the home the parties lived in for their entire marriage. He purchased the marital home for $36,500.00 and provided a $2,000.00 down payment for the home. Mrs. Kaaa may have provided $500.00 for the downpayment on the house, but this is unclear from the record. Mrs. Kaaa’s name was never placed on the deed, despite the fact that the parties refinanced the mortgage several times during the marriage. The mortgage on the marital home was paid down with funds that were earned during the marriage. The parties also renovated the carport on the home. At the time of trial, the home was worth $225,000.00. The mortgage balance was $12,871.46. During the marriage, the mortgage had been paid down a total of $22,279.00, all paid by Mr. Kaaa from the money he earned during the marriage.
According to the trial court in Kaaa, Mrs. Kaaa was only entitled to the enhancement of the value of the home which was one-half of $ 36,679.00 or $18,339.50. Mrs. Kaaa appealed this ruling, seeking one-half of the value of the passive appreciation of the marital home, the market-driven appreciation of the property. In other words, Mrs. Kaaa believed she was entitled to one-half of the $212,128.54 in equity, and the Supreme Court of Florida said she was right. The Court in Kaaa concluded that the passive appreciation of the premarital home is marital. In other words, it is to be divided. The Court also provided a formula the Florida courts must use when determining how much of the passive equity of a premarital home a spouse is entitled to.
The Supreme Court case of Kaaa v. Kaaa also resolved a conflict with the First District case of Stevens v. Stevens, 651 So.2d 1306 (1st DCA 1995). In Stevens, Mr. Stevens purchased a home prior to the marriage. It had a $20,000.00 mortgage encumbering the property at the time of marriage. Mrs. Stevens never worked. Mr. Stevens’ income earned during the marriage paid down the mortgage. Mrs. Stevens name was never placed on the deed. The parties lived in the home for the first part of their marriage. The Stevens appellate court correctly concluded that Mrs. Stevens was entitled to a share of the passive appreciation of the premarital home. The Supreme Court in Kaaa then went the extra step of outlining the method that should be used to determine how much of that passive appreciation is to be divided.
The Kaaa Court provided the following steps for determining the amount of passive appreciation that should be considered marital for equitable distribution purposes:
- Determine the current fair market value of the home
- Determine whether there has been a passive appreciation in the home’s value.
- Determine whether the passive appreciation is a marital asset under Florida Statutes.
In order for there to be a passive appreciation that is a marital asset, funds earned or acquired during the marriage must have been used to pay the mortgage and the spouse must have made contributions to the property in some way. This can be either monetarily or through providing labor and improvements. You must then determine to what extent the contributions of the spouse affected the appreciation of the property.
- Determine the value of the passive appreciation that accrued during the marriage.
- Determine how the value is to be allocated.
How is the value to be allocated?
Marital home bought and paid for prior to marriage
If the premarital home is not encumbered by a mortgage and no marital funds were used to finance to purchase the home, improve it, or maintain it, no portion of its value should be considered marital property to be equitably distributed, except if improvements were made by either party during the marriage.
Marital home bought but not entirely paid for prior to marriage
If the home was mortgaged or financed entirely by borrowed money prior to the marriage and money earned during the marriage is used to pay the mortgage or loan during the marriage, the entire value of the home should be included for equitable distribution purposes.
If this was not the case, the following mathematical formula should be used: Divide the indebtedness at the time of marriage by the value of the asset at the time of marriage.
Indebtedness at the time of marriage / Value of asset at the time of marriage
This provides you with the percentage of passive appreciation the spouse is entitled to.
For example, if the Husband had equity of 50% in his premarital home at the time of marriage and the other half was encumbered by a mortgage or otherwise financed, the Wife, upon divorce, would be entitled to one-half of the appreciated value of the marital home as of the date of filing of the Petition for Dissolution of Marriage. Of course, the value to be distributed must be reduced by whatever mortgage or loan remains unpaid.
In the case of the Kaaa’s, almost the entire home was financed at the time of the marriage. Mrs. Kaaa contributed to improvements to the home during the marriage in the form of the renovated car port. Due to these facts, the entire value of the home is marital and subject to being equitably divided between the parties.
The moral of the story is this: If you truly want to protect any premarital assets, you should consider a prenuptial agreement or postnuptial agreement. A prenuptial agreement is signed prior to the marriage. A postnuptial agreement is similar to a prenuptial agreement, but it is signed after the parties are married. In both of these agreements, you can contractually agree that your spouse is not entitled to any active or passive appreciation. This will protect any premarital homes or other assets you may have or have had at the time of marriage. These agreements will also allow you to keep separate assets that were purchased prior to the marriage that are titled in your separate name, yet are serviced, maintained, or improved by funds acquired or earned during the marriage. If you find yourself in Mr. Kaaa’s position and need legal advice or are considering a prenuptial or postnuptial agreement to protect your assets. Call today and schedule a free consultation to discuss your options.