Florida court explores scope of active/passive appreciation

The issue of active and passive appreciation of business assets in a divorce context is growing in prevalence. A noteworthy Florida ruling further explores the scope of appreciation: Does a nonowner spouse have a claim to the increased value of all nonmarital assets without showing marital effort or the use of marital assets to achieve the appreciation?

‘Middle manager’ in a company: In this case, the husband did not own a business. Instead, before the marriage, he began working for a company and, at that time, also bought a large number of company stock by way of a bank loan. During his tenure at the company he had some supervisory responsibility, but also had a couple of demotions. When he was terminated, his stock was liquidated. The shares sold for substantially more than the outstanding balance on the loan used to buy them.

The trial court determined the stock was separate property and its increase in appreciation was passive; it was, therefore, not subject to marital distribution. The wife appealed the ruling. It seems she asked the appeals court to adopt a rule “that all appreciation of the stock of a company for which a spouse works is a marital asset.” The Court of Appeal rejected the proposition.

Under the existing analytical framework, the court said, the increased value of stock from a company for which the owning spouse works can be a marital asset and subject to distribution. But, it can also be a nonmarital asset. The crux of the matter is "whether the husband exerted the sort of ‘effort’ required to move the appreciation value from the nonmarital category to the marital one,” the court explained.

For the outcome of the case, see the March 23 issue of BVWire.