Calculating the Marital Portion of Nonmarital Property When Marital Money Was Used to Pay Down the Principal Note and Mortgage
One of the confusing issues that sometimes accompanies a divorce proceeding is calculating the marital portion of nonmarital property when marital money was used to pay down the principal note and mortgage. In other words, when one party has been buying a home with their own funds prior to the marriage, the home is considered nonmarital as it was purchased before the marriage. However, following the marriage, both parties pay toward the mortgage and principal. Monies gained following the marriage are considered marital funds, and in a divorce, the settlement will be calculated as such. In Florida, Family Law Statute 61.075 details how the calculation is to work. The following information is from this statute.
61.075
(a)1. ”Marital assets and liabilities” include:
a. Assets acquired and liabilities incurred during the marriage, individually by either spouse or jointly by them.
b. The enhancement in value and appreciation of nonmarital assets resulting 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.
c. The paydown of the principal of a note and mortgage secured by nonmarital real property and a portion of any passive appreciation in the property if the note and mortgage secured by the property are paid down from marital funds during the marriage. The portion of the passive appreciation in the property characterized as marital and subject to equitable distribution is determined by multiplying a coverture fraction** by the passive appreciation in the property during the marriage.
(I) The passive appreciation is determined by subtracting the value of the property on the date of the marriage or the date of acquisition of the property, whichever is later, from the value of the property on the valuation date in the dissolution action, less any active appreciation of the property during the marriage as described in sub-subparagraph b., and less any additional encumbrances secured by the property during the marriage in excess of the first note and mortgage on which principal is paid from marital funds.
(II) The coverture fraction must consist of a numerator, defined as the total payment of principal from marital funds of all notes and mortgages secured by the property during the marriage, and a denominator, defined as the value of the subject real property on the date of the marriage, the date of acquisition of the property, or the date the property was encumbered by the first note and mortgage on which principal was paid from marital funds, whichever is later.
(III) The passive appreciation must be multiplied by the coverture fraction to determine the marital portion of the passive appreciation of the property.
(IV) The total marital portion of the property consists of the marital portion of the passive appreciation, the mortgage principal paid during the marriage from marital funds, and any active appreciation of the property during the marriage as described in sub-subparagraph b., not to exceed the total net equity in the property at the date of valuation.
**the coverture fraction is the tool used by an appraiser to separate the portion of the home’s value that occurred during the marriage from the portion of the home’s value occurring before the marriage.
If you are planning a divorce and the above situation will apply to you and your spouse, be sure to select a Family Law attorney who understands how the situation described here works. Family Law Attorney Grant Gisondo has over ten years of successful practice serving Palm Beach, Martine, St. Lucie, Miami-Dade, Broward, Orange, and Hillsborough Counties in Florida and New York, and Washington DC. He is well qualified to assist you and answer questions regarding the equitable distribution of home assets before and after marriage. To learn more about how Attorney Gisondo can help and explain how equitable distribution works, he offers an initial, free in-office consultation. His office hours are Monday through Friday, 9:00 AM to 5:00 PM, and for new clients on Saturday from 8:30 AM to 1:00 PM. To make an appointment, please call his office in Palm Beach Gardens at (561)530-4568.