§ 6.04 Appreciation of Separate Property During Marriage
| Jurisdiction | United States |
| Publication year | 2021 |
§ 6.04 Appreciation of Separate Property During Marriage126
[1]—In General
Many state statutes provide that property accumulated prior to marriage, and that accumulated after marriage by gift or inheritance, are separate property. Another issue is presented, however, if the separate property increases in value during marriage.
[2]—States with Express Statutes
Some statutes expressly address the question of appreciation of separate property. A number apparently designate as separate property all appreciation in value of all types of separate property.127 Others specify that only the increase in value during marriage of property acquired before marriage is separate property.128 It is unclear how such states would treat an increase in value of another type of separate property, such as a gift received during marriage.129 In contrast, a few states characterize any such increase in value during marriage as marital property.130
Property obviously can appreciate in value for many reasons. For example, inflation could have been high or general business conditions could have been good. Alternatively, one or both spouses might have devoted a substantial amount of time and effort or marital funds to improve the property.
From a policy standpoint, the cause of the appreciation is vital. According to the marital partnership theory, only property stemming from the efforts of either spouse during marriage should be divisible marital property. Accordingly, the marital partnership should only have a claim to any separate property appreciation to the extent, if any, that such appreciation resulted from the efforts of either spouse, or from a contribution of marital property.131 An increase in value of separate property due to market forces or the efforts of anyone other than a spouse should remain separate.132
Some statutes now reflect this distinction.133
Some courts have attempted to construe the applicable statute in a way to yield this result, even when the statute does not make this distinction. For example, the Arkansas Supreme Court affirmed the divorce court's division of the increase in value during marriage of separate property, where the increase resulted from the spouses' efforts, even though the statute provides that the increase in value during marriage of separate property is separate property.134
Some statutes limit the claim of the marital estate to certain types of separate property appreciation. The West Virginia statute provides that an increase in value of separate property is separate if it is due to "inflation or a change in market value resulting from conditions outside the control of the parties."135 A few accept the distinction that appreciation due to the efforts of either spouse during marriage should create a marital claim.136 Other states have accepted somewhat different approaches. Kentucky gives the marital estate a claim if the increase in value resulted from the efforts of the "parties" during the marriage.137 This suggests that both parties' efforts must be contributed to create a marital claim.138
New York creates a marital claim only if the non-owning spouse renders efforts.139 The statutes of a few other states are similar.140 In some instances, both spouses do work together to improve the separate property.141 However, in many instances only the owner spends time improving the property. If only the owning spouse renders services to improve separate property during marriage, under these statutes there would seem to be no marital claim.142 However, some courts with this type of statute, including New York, have decided that homemaker services rendered by the non-owning spouse can create such a marital claim to separate property appreciation.143 The rule in New York in this area seems somewhat unclear. If the increase in value is solely due to market forces, all the increase is separate.144 It is less clear what amount of effort relating to the property creates a marital claim. In a few cases, an award to the non-owning spouse of a portion of the appreciation is justified based on (1) decorating the house and caring for the children,145 and (2) upkeep and maintenance of the house.146 One New York case states that if it is established that the increase in value partially results from the non-owner's efforts, all of the increase is marital property.147 In another New York case, the husband's company increased in value during marriage by $20 million. The court found this was largely due to the efforts of others and not the owner husband, and it therefore awarded the marital estate a claim for $2 million based on the $20 million increase.148
The Tennessee statue provides that the increase in value is material only if both parties substantially contributed to its contribution and appreciation.149 Tennessee courts have construed this as requiring "real and significant" contribution.150 One court has held that the actions need not relate directly to the property at issue.151
The requirement of joint efforts, or efforts by the non-owner spouse, is a curious vestige of title theory philosophy.152 Marital partnership theory dictates that the fruits of the labor of either spouse are marital property. Separate property appreciation should be marital property to the extent that the appreciation stems from the efforts of either or both spouses during marriage. There is no justification for the distinction between the efforts of the owning spouse, the efforts of the non-owning spouse, and joint efforts. Otherwise, why not designate the wages of each spouse as separate property, unless the spouses somehow work together?
The South Carolina statute provides that a marital claim against a spouse's separate property may arise to the extent the increase in value results "directly or indirectly" from the efforts of the non-owner.153
Florida courts have noted that the statute requires proof not only of marital efforts per se, but of marital efforts that enhanced the value of the separate asset.154
In Virginia, for the marital estate to have a claim to appreciation due to the spouses' efforts, there must be "significant" personal effort that results in "substantial" appreciation.155
It is interesting to note that, in some common law states, once a court finds that property appreciated due to efforts by either or both spouses during the marriage, all the appreciation that occurred during marriage is deemed to be marital property. No effort is made to determine what portion of the appreciation was due to market forces or some other cause.156
The Maine statute expressly addresses this issue. Appreciation due to market forces remains separate, whereas appreciation due to marital labor is marital. The Maine Supreme Judicial Court has outlined how courts should address this issue. First, the non-owner has the burden of showing that the value of the separate property increased during marriage. Then the burden shifts to the owner to show that the increase resulted from something other than marital labor. In Warren v. Warren the trial court found 100% of the increase to be marital, so the court did not reach the issue of how to allocate the increase if a court finds that some but not all of the increase is due to marital labor.157
Florida courts have similarly held that the non-owning spouse has the burden to show the contribution of marital funds or labor. Then the owning spouse has the burden of showing what portion of the enhanced value during marriage is not marital.158
Some Florida courts have recognized the distinction between "active" appreciation which creates a marital claim, and "passive" appreciation which does not. Using this approach, courts have given the marital estate a claim to some of the appreciation159 or all of the appreciation160 in a spouse's stock portfolio.
Also, the standard being applied is not always clear. For example, the Tennessee statute requires a showing of "substantial" contribution.161
One New York case states that the issue should be whether the increase in value was primarily due to inflation or efforts.162 Another case states that appreciation is separate only if solely due to inflation and market forces.163 A more recent New York case held that only 30% of the appreciation during marriage was subject to equitable distribution.164
A related question is the level of activity required to create such a claim. In a New York case, the court held that a minimal commitment of time to the separate asset is not sufficient to create a claim.165 Some statutes require a showing of substantial efforts. For example, in order to create a marital claim, the Virginia statute requires proof of "substantial" effort that results in "substantial" appreciation.166 Illinois requires "significant" effort.167
A commonly encountered example is whether making investment decisions regarding separate property constitutes an investment of marital time and effort that should create a marital claim. If it does create a claim, the next question becomes how to calculate the amount of the claim.
In a Maine case Warner v. Warner, the court considered a situation where a spouse actively managed his stock portfolio during marriage. The stock portfolio contained marital and nonmarital shares that increased in value during marriage. Certain shares were purchased during marriage pursuant to a dividend reinvestment plan entered into during marriage regarding some nonmarital shares. The court construed the Maine statute and held that, even though the managing spouse actively managed the portfolio, all increases in value of nonmarital shares due to market forces should be nonmarital (note, however, that the spouse merely retained during marriage the shares he inherited). Also, the court concluded that the "routine and rudimentary" decision to enroll in a dividend reinvestment plan was not the sort of "active management" required to create a marital claim regarding any shares so purchased.168
The Maine Supreme...
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