Florida court resists call for bright-line rule on active-passive appreciation

Witt-Bahls v. Bahls, 2016 Fla. App. LEXIS 1451 (Feb. 3, 2016)

In this age of entrepreneurship, valuators working on divorce cases often run into the issue of active and passive appreciation. But the issue not only comes up in the context of one spouse's ownership of a business that qualifies as separate property, as a recent Florida appeals court ruling shows.

Prior to the marriage, the husband acquired a substantial amount of stock, by way of a bank loan, in the company for which he worked in some managerial capacity. He was never a top executive. During the marriage, when he was terminated, his stock was liquidated and sold for substantially more than the outstanding balance on the loan used to pay for the shares.

At divorce, the trial court determined the shares were separate property and the appreciation was passive. The increase in value, therefore, also was the husband's separate property.

The wife appealed the ruling. According to the appeals court opinion, she asked the court for a rule “that all appreciation of the stock of a company for which a spouse works is a marital asset.” It's not clear from the opinion whether the wife asked for a rule that would shift the burden to the stock-owning spouse to show the appreciation was passive in nature and, therefore, not part of the marital estate or whether she wanted a rule that all appreciation in value during the marriage was marital property as a matter of law.

Either way, the appeals court rejected the wife's request, suggesting that such an expansion of the concept of marital assets was the province of the legislature. Instead, the court affirmed the existing analytical framework.

To find out more about the court's discussion, click here.