My House Not Yours Article
My House Not Yours: Passive Appreciation of the Marital Residence
It’s no secret that South Florida has become a very popular place to live. After all, it never snows! As people continue to relocate to our little corner of the country the inventory of available housing continues to shrink. Consequently, basic economic principles of supply and demand have taken effect and homeowners have seen the value of their homes appreciate by as much as 100%.
As a result, divorcing spouses have been more than willing to sell their homes and cash out fearing that the bubble might soon burst. However, others find themselves in the unfortunate position of not enjoying a legal or equitable interest in the home that they have lived in for many years because their spouse purchased it prior to the marriage. Pursuant to F.S. §61.075, an asset purchased prior to the marriage is a “nonmarital” asset and is not subject to equitable distribution. How is that fair? After all, what if you worked throughout the course of the marriage and your income assisted in the payment of household expenses, maintenance, and the mortgage.
The answer to this question hinges upon whether the expenditures caused the property to appreciate in value. If the property appreciated strictly due to market conditions then the appreciation is considered passive. Passive appreciation of a nonmarital asset is not subject to equitable distribution. Caruso v. Caruso, 814 So.2d 498 (Fla. 4th DCA 2002). Generally, the payment of household expenses, including the payment of the mortgage does not cause real property to appreciate. After all, do you really think that a home skyrockets in value due to the replacement of carpeting or faux painting?
On the other hand, what if you remodeled your kitchen with granite counter-tops or converted the garage into a large playroom? Perhaps you installed marble tiles, added a loft or a swimming pool. Well, that’s a horse of a different color. Expert witnesses, such as licensed real estate appraisers are in the best position to opine whether such improvements resulted in appreciation and to what extent. Most would agree that crown molding enhances the market value of a home but chances are, unless the crown molding is made out of gold it did not cause your home to appreciate by much more than its cost. If a portion of the home increases due to improvements, the burden is upon the non-owner to show a dollar value of that enhancement, for purposes of being awarded a portion of the appreciation.
Courts have acknowledged that the increased equity enjoyed by a homeowner due to the reduction of the mortgage can be a marital asset if the monies used to pay the mortgage were from marital funds; i.e., on the date of marriage, your spouse owed $200,000.00 on the promissory note and five years later, the payoff on the note was $190,000.00. I know what you’re thinking. That’s crazy. You and your spouse paid at least $1,000.00 per month for the past five years. That’s $60,000.00. Your math is correct but you’ve overlooked one very important fact. A large portion of the mortgage payments made during your marriage were applied towards interest, taxes, and insurance. Remember, we’re only talking about the reduction of the principal balance owed on the note. Based upon the foregoing, your interest in the property is fifty percent (50%) of the principal reduction owed on the note which in this example is merely $5,000.00. It matters very little that your spouses home is now worth $150,000.00 more than it was five years earlier.
At first blush, this seems unfair but a closer examination reveals otherwise. After all, suppose you purchased a home all on your own and then got married. You’re the one that was smart enough and brave enough to make the initial investment and you’re the one that is obligated to pay the bank. Even if your spouse contributed to the monthly mortgage payments, so what. In truth, everyone has to live somewhere and paying the mortgage down did not cause the house to appreciate. If your spouse wasn’t living with you he or she probably would have been paying rent somewhere else.
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