Title: Katherine Kaaa v. Joseph Kaaa

State: florida

Issuer: Florida Supreme Court

Document:

Supreme Court of Florida 
 
 
____________ 
 
No. SC09-967 
____________ 
 
KATHERINE KAAA,  
Petitioner, 
 
vs. 
 
JOSEPH KAAA,  
Respondent. 
 
[September 30, 2010] 
REVISED OPINION 
 
LABARGA, J. 
 
This case is before the Court for review of the decision of the Second 
District Court of Appeal in Kaaa v. Kaaa, 9 So. 3d 756 (Fla. 2d DCA 2009).  The 
district court certified that its decision is in direct conflict with the decision of the 
First District Court of Appeal in Stevens v. Stevens, 651 So. 2d 1306 (Fla. 1st 
DCA 1995).  We have jurisdiction.  See art. V, § 3(b)(4), Fla. Const.  In order to 
resolve the conflict between these cases, this Court must determine whether and 
under what circumstances the passive appreciation of a marital home that is 
deemed nonmarital real property is subject to equitable distribution under section 
61.075(5)(a)(2), Florida Statutes (2007).  For the reasons expressed below, we 
 
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conclude that contingent upon certain findings of fact by the trial court, passive 
appreciation of the marital home that accrues during the marriage is subject to 
equitable distribution even though the home itself is a nonmarital asset.  We quash 
the Second District‟s decision in Kaaa, and approve the First District‟s decision in 
Stevens to the extent that it is consistent with this opinion.  We begin by explaining 
the factual and procedural posture of this case and then conduct our analysis of the 
certified conflict. 
FACTUAL AND PROCEDURAL BACKGROUND 
 
Katherine and Joseph Kaaa married in 1980.  For the next twenty-seven 
years, they resided in a home in Riverview, Florida, that Joseph Kaaa purchased 
about six months before the Kaaas‟ marriage.  Joseph Kaaa purchased the home for 
$36,500 and made a $2000 down payment.1  During the marriage, marital funds 
were used to pay down the mortgage as well as to improve the home by renovating 
the carport.  Although the home was refinanced multiple times during the 
marriage, Katherine Kaaa was never granted an interest in the property.  At the 
Kaaas‟ final dissolution hearing in 2007, they stipulated that the current fair market 
value of their marital home was $225,000, and the remaining mortgage balance 
                                         
 
1.  There is a conflict in the evidence regarding whether Katherine Kaaa 
contributed $500 toward the down payment, or whether Joseph Kaaa paid the 
entire $2000.  While this issue may be relevant on remand to the trial court, it does 
not affect our analysis of the question of law before this Court.   
 
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was $12,871.46.  In its final judgment, the trial court found that the marital home 
was Joseph Kaaa‟s nonmarital real property, the mortgage balance had been 
reduced by $22,279, and the carport renovation increased the value of the home by 
$14,400.  According to the trial court, the total enhancement value of the home 
(and the amount subject to equitable distribution) was $36,679.  Concluding that 
Katherine Kaaa was entitled to equitable distribution of only the enhancement 
value of the marital home, the trial court awarded Katherine Kaaa an equalizing 
payment in the amount of $18,339.50, and ordered Joseph Kaaa to pay her this 
amount.   
 
Katherine Kaaa appealed the award to the Second District Court of Appeal.  
Her sole argument was that the value of the passive appreciation of the marital 
home that accrued during the marriage was subject to equitable distribution.  
Relying on its decision in Mitchell v. Mitchell, 841 So. 2d 564 (Fla. 2d DCA 
2003), the Second District affirmed the judgment of the trial court and held that 
Katherine Kaaa was not entitled to equitable distribution of the value of the home‟s 
passive appreciation.  However, the district court also certified direct conflict with 
Stevens, a decision from the First District Court of Appeal. 
ANALYSIS 
We frame the question of law before us as follows: 
When a marital home constitutes nonmarital real property, but 
is encumbered by a mortgage that marital funds service, is the value 
 
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of the passive, market-driven appreciation of the property that accrues 
during the course of the marriage deemed a marital asset subject to 
equitable distribution under section 61.075(5)(a)(2), Florida Statutes 
(2007). 
 
Because this is a pure question of law, our standard of review is de novo.  See 
D‟Angelo v. Fitzmaurice, 863 So. 2d 311, 314 (Fla. 2003) (stating that the standard 
of review for pure questions of law is de novo).  As we explain below, we answer 
this question in the affirmative.  First, we discuss the applicable statute, section 
61.075(5)(a)(2), Florida Statutes (2007).  Second, we discuss Stevens and Kaaa, 
respectively.  Third, we discuss the proper method for calculating and allocating an 
award of passive appreciation.    
Section 61.075(5)(a)(2), Florida Statutes (2007)2 
The dissolution of a marriage in Florida is governed by chapter 61 of the 
Florida Statutes.  Particularly relevant to our analysis is section 61.075, which 
addresses the “[e]quitable distribution of marital assets and liabilities.”  This 
section expressly provides what constitutes both “marital assets and liabilities” and 
“nonmarital assets and liabilities.”  Moreover, the statute provides that “in 
distributing the marital assets and liabilities between the parties, [absent a 
justification for an unequal distribution,] the court must begin with the premise that 
                                         
 
2.  In 2008, section 61.075, Florida Statutes, was amended to include a 
new subsection (5).  What was section 61.075(5)(a)(2) in 2007 is now section 
61.075(6)(a)(1)(b).  The language, however, is substantively unchanged.   
 
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the distribution should be equal.”  § 61.075(1), Fla. Stat. (2007).  The statutory 
definition of “marital assets and liabilities” contained in section 61.075(5)(a)(2) 
provides in relevant part:   
 
61.075 Equitable distribution of marital assets and liabilities.— 
. . . . 
(5) As used in this section: 
 
(a) “Marital assets and liabilities” include: 
. . . . 
2. 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 . . . . 
 
(Emphasis added.)  This language clearly provides that under certain 
circumstances, the appreciation of a nonmarital asset is indeed a marital asset.  We 
reject Joseph Kaaa‟s argument that passive appreciation is not encompassed by the 
language in this section, and we conclude that the passive appreciation of a 
nonmarital asset, such as the Kaaa‟s marital home, is properly considered a marital 
asset where marital funds or the efforts of either party contributed to the 
appreciation.  Such findings are to be made by the trial court based on evidence 
presented by the parties.  Although the district courts in Stevens and Kaaa applied 
section 61.075(5)(a)(2) in their analyses, they arrived at different conclusions 
about whether the passive appreciation of the respective marital homes constituted 
a marital asset.  We address each case in turn.    
  
 
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Stevens 
Although the Second District concluded that the value of the passive 
appreciation of the Kaaas‟ home that accrued during the marriage was not subject 
to equitable distribution, the First District concluded otherwise on similar facts in 
Stevens, and held that “the trial court erred . . . in failing to award the appellant an 
equitable portion of the appreciated value of the non-marital real property.”  
Stevens, 651 So. 2d at 1307.  In Stevens, the husband purchased real property and 
acquired a $20,000 mortgage debt before he married.  During the first part of their 
marriage, the husband and wife lived on the property.  The wife, who never 
worked outside of the home during the marriage, was never added to the title, and 
only the husband‟s income was used to pay the mortgage.  The trial court 
concluded that the property was the husband‟s nonmarital asset and did not award 
the wife any portion of the value of the property‟s passive appreciation.   
The First District reversed the trial court‟s failure to award the wife a portion of the 
passive appreciation, stating that “[a]n asset brought by one party to a marriage, 
which appreciates during the course of the marriage, solely on account of inflation 
or market conditions, becomes in part a marital asset, if it is encumbered by 
indebtedness which marital funds service.”  Id. at 1307.  The court concluded that 
“the trial court erred in excluding from the equitable distribution plan the entire 
amount by which the . . . property appreciated in value during the marriage, since 
 
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marital funds were used to make the mortgage payments and pay the taxes.”  Id.  
The district court rejected the argument that because only the husband‟s income 
paid the mortgage, the wife was not entitled to a portion of the value of the passive 
appreciation.  The court noted that each spouse‟s funds are to be considered marital 
funds, and concluded that because marital funds were used to pay the mortgage 
and other obligations, the court should have awarded the wife a “reasonable 
proration of the appreciated value.”  Id. (quoting Sanders v. Sanders, 547 So. 2d 
1014, 1016 (Fla. 1st DCA 1989).  We agree with the reasoning in Stevens to the 
extent that it concludes that the payment of the mortgage with marital funds 
subjected the passive appreciation to equitable distribution.  However, we 
emphasize here that it is the passive appreciation in the value of the home that is 
the marital asset, not the home itself.  As the First District Court of Appeal has 
noted, “improvements or expenditures of marital funds to a nonmarital asset does 
not transform the entire asset into a marital asset; rather, it is only the 
„enhancement in value and appreciation‟ which becomes a marital asset.”  Martin 
v. Martin, 923 So. 2d 1236, 1238-39 (Fla. 1st DCA 2006) (quoting Strickland v. 
Strickland, 670 So. 2d 142, 143 (Fla. 1st DCA 1996)).  Moreover, we emphasize 
that the trial court must make a finding of fact that the non-owner spouse made 
contributions to the nonmarital property during the course of the marriage.  While 
 
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these contributions need not be strictly monetary and may include marital funds or 
the efforts of either party, they must enhance the value of the property.  
Kaaa 
In Kaaa, the Second District noted that “marital funds were the source of 
virtually all of the monies used to service the mortgages on the property and the 
various expenses associated with it.”  Kaaa, 9 So. 3d at 759.  Moreover, the district 
court noted that the application of Stevens to the facts in Kaaa would have 
produced a different result.  The district court said: 
Under the First District‟s approach in Stevens, the Wife 
[Katherine Kaaa] would be entitled to equitable distribution of a share 
of substantially all of the passive appreciation in the Riverview 
property during the course of the parties‟ twenty-seven-year marriage.  
However, under Mitchell, the Wife is not entitled to any portion of the 
considerable passive appreciation in the value of the property.  
 
Kaaa, 9 So. 3d at 759.  While the trial court and district court correctly concluded 
that the Kaaas‟ marital home is nonmarital real property, the value of the passive 
appreciation of the property that accrued during the marriage is a marital asset 
because (1) the value of the home appreciated during the marriage while marital 
funds were being used to pay the mortgage, and (2) Katherine Kaaa made 
contributions to the home.  Because paying the mortgage is a prerequisite to 
enjoying the appreciation in value of the marital home, we conclude that principles 
of equity do not allow an owner spouse to receive the full benefit of the passive 
appreciation when the nonowner spouse contributed to the property, and marital 
 
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funds were used to pay the mortgage.  Such inequities must be balanced by the trial 
court making specific factual findings regarding the contributions of the nonowner 
spouse and the relationship of those contributions to the passive appreciation of the 
property.      
Determining an Award of Passive Appreciation 
 
We now turn to the method that a trial court should employ as it determines 
whether a nonowner spouse is entitled to a share of the passive appreciation and 
calculates the proper allocation.  We note that the trial court‟s task in this regard is 
an extremely fact-intensive one, and there are certain steps that each court must 
take.  First, the court must determine the overall current fair market value of the 
home.  Second, the court must determine whether there has been a passive 
appreciation in the home‟s value.  Third, the court must determine whether the 
passive appreciation is a marital asset under section 61.075(5)(a)(2).  This step 
must include findings of fact by the trial court that marital funds were used to pay 
the mortgage and that the nonowner spouse made contributions to the property.  
Moreover, the trial court must determine to what extent the contributions of the 
nonowner spouse affected the appreciation of the property.  Fourth, the trial court 
must determine the value of the passive appreciation that accrued during the 
marriage and is subject to equitable distribution.  Fifth, after the court determines 
the value of the passive appreciation to be equitably distributed, the court‟s next 
 
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step is to determine how the value is allocated.  Based on the circumstances of this 
case, we approve the methodology in Stevens, which addresses the disposition of 
nonmarital real property assets and provides the following method for determining 
how the appreciated value is to be allocated:  
If a separate asset is unencumbered and no marital funds are 
used to finance its acquisition, improvement, or maintenance, no 
portion of its value should ordinarily be included in the marital estate, 
absent improvements effected by marital labor.  If an asset is financed 
entirely by borrowed money which marital funds repay, the entire 
asset should be included in the marital estate.  In general, in the 
absence of improvements, the portion of the appreciated value of a 
separate asset which should be treated as a marital asset will be the 
same as the fraction calculated by dividing the indebtedness with 
which the asset was encumbered at the time of the marriage by the 
value of the asset at the time of the marriage.  If, for example, one 
party brings to the marriage an asset in which he or she has an equity 
of fifty percent, the other half of which is financed by marital funds, 
half the appreciated value at the time of the petition for dissolution 
was filed, § 61.075(5)(a) 2, Fla. Stat. (1993), should be included as a 
marital asset.  The value of this marital asset should be reduced, 
however, by the unpaid indebtedness marital funds were used to 
service. 
 
Stevens, 651 So. 2d at 1307-08 (emphasis added).  Applying this language from 
Stevens to Kaaa, we note that the home was financed almost entirely by borrowed 
money that was repaid almost entirely by marital funds.  Moreover, there appears 
to be ample evidence in the record of contributions made by Katherine Kaaa that 
affected the passive appreciation of the home‟s value.   
In sum, when a marital home constitutes nonmarital real property, but is 
encumbered by a mortgage that marital funds service, the value of the passive, 
 
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market-driven appreciation of the property that accrues during the course of the 
marriage is a marital asset subject to equitable distribution under section 
61.075(5)(a)(2), Florida Statutes (2007).  For the foregoing reasons, we quash the 
Second District‟s decision in Kaaa and approve the First District‟s decision in 
Stevens.  Consequently, we remand this case for proceedings consistent with this 
opinion.  
It is so ordered.  
CANADY, C.J., and PARIENTE, LEWIS, QUINCE, POLSTON, and PERRY, JJ., 
concur. 
 
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND 
IF FILED, DETERMINED. 
 
 
Application for Review of the Decision of the District Court of Appeal - Certified 
Direct Conflict of Decisions 
 
 
Second District - Case No. 2D08-276 
 
 
(Hillsborough County) 
 
Mark A. Neumaier, Tampa, Florida, 
 
 
for Petitioner 
 
Ellen E. Ware and Jeanie E. Hanna of Ware Law Group, P.A., Tampa, Florida, 
 
 
for Respondent