An in-depth look at active effort in the appreciation of nonmarital assets.

• Author: Reiss, Jerry
• Position: Florida

All assets acquired during marriage are presumed to be marital property. (1) These include assets brought into the marriage. (2) It is the burden of the spouse wishing to show otherwise to prove a nonmarital portion or portions. (3) When a spouse shows that nonmarital and marital assets were commingled, it is the burden of the spouse seeking a nonmarital classification to prove why these assets have not been transformed into marital property. (4) This is generally done by showing that these assets were kept separate and apart from other assets acquired or brought into the marriage or have separate characteristics that make them distinguishable from all other assets. (5) This means that assets readily identifiable, like an automobile, boat, or residence, cannot change ownership by the doctrine of commingling, (6) but only by a normal title transfer from one spouse to the other or to the spouses' joint names. Such a transfer is called an interspousal gift. When this occurs, it creates a very heavy burden on the spouse wishing to show otherwise. (7) Because monies are fungible, they must be kept in separate accounts and ownership must be separately titled and remain so during the marriage to retain its nonmarital character. (8)

Enhancement of Nonmarital Property

The earnings or growth of a nonmarital asset is deemed to be nonmarital property, unless the other spouse can show that it was actively managed during the marriage. This means proving that substantial time was spent in growing the asset. When active management of a nonmarital asset can be shown, it creates a presumption that the growth or income is marital property. (9) When growth or income is inextricably tied to the marital asset itself, this can sometimes transmute the entire asset into a marital category. (10) The other spouse can overcome this presumption, however, by showing that the growth included only passive effort.

Under F.S. [section]61.075(6), effort is either passive or active. In order to prove that the effort used in growing the asset is passive, there is an obligation to show correspondingly that it is not active, since the burden does not first exist unless the court finds that active management has occurred. (11) That often means showing that the same result could have been achieved with little or no effort and that the substantial labor used is really unrelated to the appreciation itself. (12)

Classification of Efforts

* Active and Passive Effort--F.S. [section]61.075(6)(a)lb defines "active effort" as "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." There has been a great deal of confusion as to the meaning of this statute. But the key to understanding it is the phrase "resulting from" because the mere fact that there was effort does not in itself mean that the effort is otherwise "active." The growth in the asset must first result from that effort. It must be the primary causal source. Contrast this with income, which does not have to be the result of active effort. It may come from a nonmarital asset and, thus, provide only passive appreciation.

An encyclopedia definition of "passive income" is "income received on a regular basis with little effort required to maintain it. It is closely related to the concept of 'unearned income.'" It follows that passive income involves only passive effort. Therefore, the mere fact that the above quoted statute considers appreciation by passive effort to be a nonmarital asset is enough for one to conclude that when it takes little effort to produce that growth then that effort in and of itself should not transmute all of the appreciation in the subject asset in and to a marital classification, as many in the Fourth District cases have previously concluded. (13) When the effort involved in producing the growth is substantial, that sole fact does not mean that the asset is "actively" improved because the operative term in the determinative process reverts back to resulting from. When the same result could have been achieved with little or no effort, then it matters not that far more effort was really involved. (14)

* Tangential Effort and Foundation of Efforts--In reality, there are two other forms of effort discussed in the caselaw and the principles of law cited therein: "tangential effort" and a "foundation of efforts."

Merriam Webster's Dictionary defines "tangential" as slightly or indirectly related to something; not closely connected to it. Therefore, tangential effort cannot be responsible for active improvement of a premarital asset because, by statute, if the premarital asset is actively improved, that improvement must necessarily result from the effort expended. By further example, if substantial effort was extended, in actively managing a pool of funds, then it is not active improvement if one can show that the effort was only tangential to the growth itself. This occurs when great effort was used to obtain a market result that could have been achieved in any event with little or no effort. For example, tangential effort occurs when one works past the cutoff date to vest a stock or option that was granted before the cutoff date, but is otherwise awarded now in recognition of past service. (15) The key point is that the growth involved may show tangential effort to be very substantial and yet it is found by the courts generally to be only a passive improvement.

Another type of effort is built on a foundation of efforts. A "foundation of efforts" is characterized when both marital and nonmarital effort contribute to the result. (16) When the result cannot possibly be achieved without the latter effort, many confuse the latter effort with what actually caused the given result. They justify the reasoning based on shining a light to allegedly reveal a "bright line" to the growth. (17) But no bright line alters the fact that the earlier effort built the foundation. Thus, remove the foundation and the end result could not have been achieved solely by the effort that followed. The operation of the foundation of efforts doctrine is in widespread use or is often characterized when a coverture or service fraction is used for the end result.

This concept revolves around employee perks, and other forms of compensation involving vesting, such as with stock options and stock, in which it has been previously determined that the stock awarded before the cutoff date is really only partially earned. Service-based vacation pay is built on a foundation of efforts because the amount of vacation time is determined by the amount of accumulated service. Pensions are built on a foundation of efforts. If it takes 20 years before an entitlement to benefits exists, the many cases classify it as only a "perk" that has not matured. (18) We also see this in pensions with an early retirement discount. (19) If the employee separated earlier than his or her normal retirement date, an early retirement discount may apply to the shared benefit. However, the spouse is not penalized based on a theoretical retirement on the cutoff date when the employee did not in fact separate early. A contingent fee may involve both marital and nonmarital effort and when it does, it will not materialize without the later effort. But that does not necessarily...