Active-passive categorization skews appreciation analysis, court finds

Bair v. Bair, 2017 Fla. App. LEXIS 3737 (May 22, 2017)

Valuators may think they know all there’s to know about quantifying the appreciation of nonmarital property by using the active versus passive framework. Think again. A recent Florida divorce case illustrates that the premature categorization of assets may lead to an improper valuation.

The focus during divorce proceedings was the husband’s separate minority interest in a boat dealership. The company also owned real property whose value had dropped considerably during the relevant time. The parties agreed the husband’s ownership interest was separate. They also agreed that the husband’s efforts had contributed to an increase in the company’s value during the marriage. However, they disagreed over how much the company had appreciated in value during the relevant period and how much of the appreciation was the result of the husband’s marital labor.

Florida law provides that the appreciation in value of nonmarital assets resulting from the efforts of either party during the marriage is a marital asset.

Here, expert testimony on the appreciation issue took up two of the three hearing days. The trial court adopted the company valuation the wife’s expert proposed, which was about $1 million higher than the value determination of the husband’s expert. Further, the trial court largely adopted the wife’s expert’s calculation of the marital labor. The crux was that, in valuing the company, the wife’s expert gave no consideration to the decreased value of the real estate, contending this asset was passive in nature. Any change in value was the result of market forces rather than the husband’s management, he reasoned.

The trial court accepted this perspective, but the Florida Court of Appeal found that, even if this was a fact, the valuation was improper. Excluding this asset resulted in legal error, the court found.

Find out more about the appeals court analysis here.