Source: https://www.floridabar.org/the-florida-bar-journal/a-seven-step-analysis-of-equitable-distribution-in-florida-part-1-classification-and-valuation-of-marital-property/
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A Seven-Step Analysis of Equitable Distribution in Florida Part 1: Classification and Valuation of Marital Property – The Florida Bar
Vol. 73, No. 5 May 1999 Pg 62 James Rhett Brigman and Victoria M. Ho Family Law
Florida’s equitable distribution scheme is set out in F.S. §61.075. The statute gives the trial court the power to divide the parties’ marital assets in or after a dissolution proceeding. To perform a distribution, the court first must classify the parties’ property as either marital or nonmarital. The court then must value the assets as of a date determined by the court. Finally, the court must distribute the marital assets equitably between the parties, starting from the premise that any distribution will be equal:
In a proceeding for dissolution of marriage, in addition to all other remedies available to a court to do equity between the parties, or in a proceeding for disposition of assets following a dissolution of marriage by a court which lacked jurisdiction over the absent spouse or lacked jurisdiction to dispose of the assets, the court shall set apart to each spouse that spouse’s nonmarital assets and liabilities, and in distributing the marital assets and liabilities between the parties, the court must begin with the premise that the distribution should be equal.. . .1
Taken in a different order, the subparts of §61.075 lend themselves to a logical, chronological guideline which we hope will define the distribution process more clearly. As an overview, the process can be illustrated through the following seven steps:
1) Set the cutoff date relevant to which the court will classify assets and liabilities as marital or nonmarital: i.e., assets acquired or liabilities incurred after the marriage began but before this cutoff date will be presumed marital, and assets acquired or liabilities incurred after the marriage began but after this cutoff date will be presumed nonmarital. F.S. §61.075(6).
2) Classify the parties’ assets and liabilities as marital or nonmarital. F.S. §§61.075(5) and 61.075(7).
3) Set the date or dates at which the parties’ assets and liabilities will be valued. F.S. §61.075(6).
4) Assign value to the parties’ marital assets and liabilities. F.S. §61.075(3)(b) and (c).
5) Distribute the parties marital assets and liabilities, keeping in mind that any distribution should be equal unless one or more of the factors in §61.075 (1)(a)–(j) justifies an unequal distribution.
6) Structure the distribution award:
a) An unequal distribution must be supported in the order by written findings based on competent substantial evidence as to any factors justifying the inequality. F.S. §61.075(3).
b) Regardless of whether the distribution is equal or unequal, the order must include specific written findings as to the clear identification of nonmarital assets and liabilities, the identification and valuation of marital assets and liabilities and which spouse is entitled to each, and any other factors which may be necessary to explain the rationale for the distribution scheme to an appellate court or a party. F.S. §61.075(3)(a)–(d).
c) To effect the judgment, a court can order lump sum or periodic payments. F.S. §61.075(9).
7) Consider whether alimony is appropriate. F.S. §61.075(8).
Part one of this article covers the first four steps in the process: 1) getting to the point of distribution by setting the date relevant to classification of assets and liabilities; 2) classifying assets and liabilities as marital or nonmarital; 3) setting dates relevant to valuing the assets and liabilities; and 4) assigning value to the marital assets and liabilities. Our main emphasis in part one will be on classification. In part two we will discuss steps five through seven: 5) the actual distribution process (including circumstances which have justified unequal distributions); 6) structuring the distribution award; and 7) the interplay between distribution and alimony.
Step 1: Establishing Duration of “Partnership”
For purposes of classifying the assets and liabilities as marital or nonmarital, one important piece of information a court needs to know is whether assets and liabilities were acquired or incurred before, during, or after the marriage. So, before the court can begin the classification process, it makes sense that it would have to determine the duration of the “partnership.” Obviously, establishing the beginning of the marriage is easy; it is setting the ending date which sometimes is complex. It might not be equitable to use the date the parties formally dissolved the marriage, since the final order might not be entered for a substantial period of time after the parties officially decided to divorce. It would be illogical to presume that assets acquired during this period were marital. Section 61.075(6) addresses this concern by providing that the “cut-off date for determining assets and liabilities to be identified or classified as marital assets and liabilities” is the earliest of the date the parties entered into a valid separation agreement, any other date expressly established by a valid separation agreement, or the date of the filing of a petition for dissolution of marriage.
Step 2: Classification of the Assets
After the court has established the “cut-off date” in step 1, it can begin the difficult process of identifying the parties’ assets and liabilities and classifying them as marital or nonmarital. This is one of the most important steps in the distribution process, since §61.075(1) makes it clear that only marital property can be distributed. Sections 61.075(5)(a) and (b) and §61.075(7) provide some definition for what constitutes marital and nonmarital property. The sections, taken together, establish types of property and suggest how each should be classified, which we describe in the following major four categories:
• Marital property: Property “created” during the marriage
(real property held as tenants by the entireties, assets acquired, and liabilities incurred individually or jointly during the marriage, and pension and retirement plans).
Section 61.075(5)(a)(5) mandates that real property held by the parties as tenants by the entireties is to be treated as marital, regardless of when the property was acquired. Prior to the Florida Supreme Court’s decision in Robertson v. Robertson, 593 So. 2d 491 (Fla. 1991), there was a presumption in favor of awarding the property to one party when a party could establish that he or she purchased the property with nonmarital funds. ( See Ball v. Ball, 335 So. 2d 5 (Fla. 1976)). In Robertson, the court held that even when a party could show nonmarital funds were used to purchase entireties property or when premarital property was later conveyed to entireties ownership, the statute created a presumption that the property was marital and subject to equitable distribution.2 It is up to the spouse seeking to have the property classified as nonmarital to prove that a gift was not intended.3
The First District Court of Appeal has expanded on this to hold that when property is held by the entirety, expenditures made on the property during the marriage are presumed to be “in furtherance of the marriage” and are presumed to be from marital funds unless proved otherwise.4 That court has also held that even when a party can clearly show that inherited or nonmarital funds are the source of money paid for additions or improvements to entireties property, the whole property is still classified as marital unless the party can show that no gift was intended.5
Although it is difficult to overcome the presumption that a gift was intended, it is possible. For instance, in Hill v. Hill, 675 So. 2d 168 (Fla. 5th DCA 1996), the former husband conveyed title to a house in which the couple resided to himself and his wife as tenants by the entireties. In reversing the trial court’s determination that the house was a marital asset, the court held that the husband showed that no gift of the property was intended. The court looked to testimony of both parties stating that the conveyance was purely for survivorship purposes: The former husband was concerned with making sure the property devolved to his wife or children, instead of to his mother and sister, at his death.6 A party seeking to overcome the presumption is generally required to meet a “greater weight of the evidence” standard.7
Some courts have applied the presumption explained in Robertson to personal property as well. In Thibault v. Thibault, 632 So. 2d 261 (Fla. 1st DCA 1994), the court held that when the initial investment in the parties’ business venture came from a joint account established with the former wife’s premarital funds, the Robertson rule applied.8 It was her burden to overcome the presumption that a gift of the funds was intended.
Generally, assets and liabilities created during the marriage are treated much the same way as real property held as tenants by the entireties. Section 61.075(5)(a)(1) classifies as marital property “[a]ssets acquired and liabilities incurred during the marriage, individually by either spouse or jointly by them.” Section 61.075(7) adds that “all assets acquired and liabilities incurred by either spouse subsequent to the date of the marriage and not specifically established as nonmarital assets or liabilities are presumed to be marital assets and liabilities.” This part of the statute reversed Ball, in which the Florida Supreme Court had held that assets acquired or liabilities incurred by either spouse individually during the marriage were presumed to be nonmarital. The contesting spouse—under this earlier rule—had to prove that a gift was intended. Under the new rule, the spouse trying to have the property declared nonmarital must affirmatively overcome the gift presumption “by a showing that the assets and liabilities are nonmarital assets and liabilities.”9 Even when a spouse titles property solely in that spouse’s name, if it was acquired during the marriage, it can properly be treated as a marital asset.10
When an asset created during the marriage is not received until after the divorce petition has been filed, it is still presumed to be a marital asset subject to equitable distribution. In Beers v. Beers, 23 Fla. L. Weekly D2370 (Fla. 5th DCA 1998), the court considered the former wife’s claim to fees received by the attorney-husband, and recognized that characterization of the fees depended on the timing of the retainer and the work performed on the case. Citing the Fourth District Court of Appeal’s opinion in Roberts v. Roberts, 689 So. 2d 378 (Fla. 4th DCA 1997), for support, Beers held that if the retainer was received and the work was performed prior to the filing of the petition for dissolution, “the fees may properly constitute property subject to equitable distribution, even though the fees were received after the filing of the petition.”11 When the retainer was received and work was performed after the date of filing the petition for dissolution, fees received would be nonmarital property under the clear language of §61.075(6).12 However, the court recognized that in at least one scenario, characterization was not so clear-cut:
In situations where the attorney-spouse is retained before the filing of the petition, but performs work both before and after the filing of the petition, the decision as to whether the fees received upon settlement constitute marital property is one that lies within the sound discretion of the trial judge.13
While the Beers court used the rationale in Roberts for support, the conclusion in Roberts concerned contingency fee cases. The Roberts court ultimately held that due to their highly speculative nature, unsettled contingency fee cases should not be included as marital assets, even when they had initiated during the marriage.14
Even intangible assets, if created during the marriage, are marital. For instance, in Thompson v. Thompson, 576 So. 2d 267 (Fla. 1991), the Florida Supreme Court held that professional goodwill can also be a marital asset: “If it exists and if it was developed during the marriage, professional goodwill is a marital asset which should be included in the marital estate upon dissolution.”15 Personal goodwill, however, is a separate nonmarital asset and, therefore, not subject to equitable distribution.
Pension and retirement plans also are marital property. Section 61.075(5)(a)(4) includes “[a]ll vested and nonvested benefits, rights, and funds accrued during the marriage in retirement, pension, profit-sharing, annuity, deferred compensation, and insurance plans and programs.. . . ” This probably applies to unvested stock options as well, although Florida does not offer any cases directly on this issue.
•Separate property : Property which is or was owned solely by one party.16
Section 61.075(5)(b)(1) defines as nonmarital “[a]ssets acquired and liabilities incurred by either party prior to the marriage, and assets acquired and liabilities incurred in exchange for such assets and liabilities.” The general rule, then, is that property which belonged to one spouse before the marriage remains nonmarital property. One nuance of this rule involves pension and retirement plans. While pension and retirement plans, as discussed above, generally qualify as marital assets, at least some of the funds included in the plans can constitute nonmarital property. In Blase v. Blase, 704 So. 2d 741 (Fla. 4th DCA 1998), the Fourth District Court of Appeal held that the portion of funds which had already been deposited into the former husband’s 401(k) plan before his marriage were properly classified as nonmarital property. Only the funds deposited during the marriage constituted marital assets.17
If property held by a party before a marriage can be classified as nonmarital, it makes sense that inherited property or other property separately given to one spouse during the marriage would also be nonmarital. Accordingly, §61.075(5)(b)(2) provides that “assets acquired separately by either party by noninterspousal gift, bequest, devise, or descent, and assets acquired in exchange for such assets” are nonmarital.
It is possible for nonmarital property to lose its nonmarital character. Section 61.075(5)(a)(3) classifies “interspousal gifts during the marriage” as marital. Outside of explicit gifts in the ordinary sense of the word, this section also applies to nonmarital property which is either used for the marriage or is not kept separate from other, marital property. How “separate” the property has to remain is an important issue. In the case of cash, the property easily can become marital if it is deposited into joint accounts, the rationale being that “funds so intermingled lose their separate identity and become untraceable.”18 For example, in Amato v. Amato, 596 So. 2d 1243 (Fla. 4th DCA 1993), the court held that $70,000 in insurance proceeds belonging to the wife, but which had been commingled in a joint checking account, could properly be classified as marital property. The court held that the funds were subject to the same presumption outlined in Robertson that they had become marital property.
Most courts agree that actual commingling can convert at least part of the nonmarital property to marital assets. It is not clear what happens when some of the funds are traceable and a party can establish that those funds never lost their separate character. Amato contained a footnote in which the court observed there was no suggestion that the original deposit of nonmarital funds could be traced. The court in Archer v. Archer, 712 So. 2d 1198 (Fla. 5th DCA 1998), has interpreted this footnote as suggesting that when funds can be traced, another result might be reached. Archer held that the presumption of a gift to the other spouse arose only with respect to those funds in the joint account which had actually become commingled with marital funds. When it could be established that certain assets deposited into a joint account by the former wife were from a nonmarital source and had never become actually commingled or otherwise untraceable, the former husband had the burden of proving that a gift was intended. If the husband could not meet this burden, certain stocks in the joint account which were traceable could properly be classified as nonmarital.19
This is consistent with Spielberger v. Spielberger, 712 So. 2d 835 (Fla. 4th DCA 1998), in which the court considered an account made up of money deposited by the husband prior to the marriage. Although the account had been titled in both parties’ names after the marriage, the court held that because the wife never deposited any funds or withdrew any funds from the account, there was no actual commingling, and the account retained its nonmarital character.20 The court in Lyons v. Lyons, 687 So. 2d 837 (Fla. 2d DCA 1996), reached a similar conclusion, holding that when a certificate of deposit funded solely by one party’s inheritance was titled in both names but the property was never commingled, the CD was still a nonmarital asset.21
Even when nonmarital property is kept separate from joint funds, if a portion of the property is used to acquire assets or luxuries for the marriage, those acquired assets or luxuries become marital property under the theory of interspousal gifting.22 When nonmarital assets are used as collateral to secure a marital loan, the courts are divided. The Second District Court of Appeal considered this issue in Farrior v. Farrior, 712 So. 2d 1154 (Fla. 2d DCA 1998), and held that the collateral retained its nonmarital character.23 The court reasoned that “it is completely illogical to say that the pledge of $10 million in stock to secure a $100,000 debt would convert the $10 million in stock to a marital asset.”24 However, the court recognized that this directly conflicts with the Third District Court of Appeal’s decision on that issue in Adams v. Adams, 604 So. 2d 494 (Fla. 3d DCA 1992), and certified conflict to the Florida Supreme Court.
• Enhancement, appreciation, and income : Active appreciation is marital, passive appreciation is separate.25
When there is passive appreciation on nonmarital property—that is, appreciation because of market or other factors and not stemming from the effort of a party—the appreciation is also treated as a nonmarital asset. In Blase, after the court held that any funds which were in the husband’s 401k before the marriage were nonmarital property, the court added that any passive appreciation or interest accruing during the marriage—as to that nonmarital portion—also constituted nonmarital property.26
But the statute recognizes that nonmarital property can be “improved” through the efforts of either spouse or the efforts of the “partnership.” Section 61.075(5)(a)(2) specifically includes active appreciation of a nonmarital property under marital assets: “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.. . . ” If the nonmarital assets of one spouse appreciate either due to marital effort or expenditure or due to the efforts of the other spouse, the character of the underlying nonmarital property does not change, but the appreciation is a marital asset. In Robbie v. Robbie, 654 So. 2d 616 (Fla. 4th DCA 1995), the appellate court considered the husband’s family’s corporation. Although the corporation itself was nonmarital property, the husband had taken an active role in the company’s management during the parties’ marriage, so the court held that his marital efforts enhanced the company’s value. That enhancement in value constituted a marital asset.27
The Second District Court of Appeal has also used this subsection of the statute to conclude that when marital funds are used to pay down a mortgage on nonmarital property, the resulting equity gained in the property is a marital asset subject to distribution.28
In Farrior, the court considered stock inherited by the former wife and titled in her name for the duration of the marriage. Although the stock itself was a nonmarital asset, the court held that if the trial court could find evidence that the husband’s investment advice had increased the value of the stock, that portion of the appreciation in value would be a marital asset.29 One important word of caution is in order here: The Farrior decision certified conflict with the decision of another district court on a separate issue. Although the Florida Supreme Court probably will not review Farrior ’s holding regarding the appreciation issue since it is a fairly straightforward reading of the statute, it is important to realize that this is a possibility. Once the court exercises jurisdiction, it is not limited to review of just the conflict issue.
When there is income from property, that income is generally treated the same as the underlying property: Income from marital property is treated as marital and subject to distribution, income from nonmarital property is treated as nonmarital and not subject to distribution. There is one logical caveat: Section 61.075(5)(b)(3) defines as nonmarital “all income derived from nonmarital assets during the marriage unless the income was treated, used, or relied upon by the parties as a marital asset.. . . ” As with other types of nonmarital property, if it is used as marital property, it is treated as marital property.
• Property disposed of by the direction of the parties :
While courts do have the power to effect a distribution, it is not always necessary for them to do so. In some instances, the parties themselves might have a distribution scheme which satisfies both sides. This allows for the parties to decide which assets are more valuable to each spouse, and come up with a distribution which, while not necessarily “equal” on paper, may be more satisfactory than a judicial “add it all up and divide by two” approach. Section 61.075(5)(b)(4) recognizes this; it classifies as nonmarital property “[a]ssets and liabilities excluded from marital assets and liabilities by valid written agreement of the parties, and assets acquired and liabilities incurred in exchange for such assets and liabilities.”
This section gives the parties the right to agree to exclude certain property from judicial distribution. In fact, the whole distribution process may be governed by agreement between the parties. The Fifth District Court of Appeal, in Viera v. Viera, 698 So. 2d 1308 (Fla. 5th DCA 1997), explained:
In a contested dissolution action, Florida law requires the identification of marital and nonmarital assets and liabilities and the allocation of assets and liabilities to each party. This requirement is not necessary where there is an agreement executed by the parties, as long as the agreement is followed. However, the final judgment must reflect that the property was distributed as agreed.30
While the parties can direct the distribution through a written agreement, Viera holds that the court still has a duty to ascertain whether the assets and liabilities were actually distributed in accordance with the agreement. And as with any contract, the court can make a determination of whether the agreement itself is valid.
Step 3: Setting the Valuation Date
After a court establishes what the marital assets are, it has the pool of property which can be distributed. These assets (and, of course, liabilities) can be a hodgepodge of apples and oranges—extremely different in kind. Also, some or all may have appreciated or depreciated over the course of time. It would not make sense to arbitrarily set one date for valuing all assets in all cases, so the court must determine the appropriate date or dates before it begins the process of valuing the property.
Section 61.075(6) provides that the dates to be used for determining the values of marital assets and liabilities (different assets may, in the court’s discretion, be valued at different dates) are dates determined by the court which are “just and equitable under the circumstances.” Generally, the date of valuation is either the date the parties entered into a valid separation agreement or the date they filed the petition for dissolution,31 but appellate courts have upheld other dates—such as the date of the final hearing—as well.32 When marital assets have appreciated passively since the filing date, the date of the final hearing generally should be used. When marital assets have appreciated due to the work efforts of either party since the filing date, the filing date should be used.
Step 4: Valuing the Marital Property
For the court to be able to structure a distribution “equitably,” it must ascertain the value of the marital assets and liabilities. Valuing some property, such as checking accounts, cars, and houses, will be fairly straightforward once the court has established a valuation date. Other property may present more of a challenge. Consider, for example, intangible assets. Remember Thompson, 576 So. 2d at 268, where the Florida Supreme Court held that professional goodwill can be a marital asset. Obviously, assets such as this present special problems regarding valuation, but at least one court has used a “fair market value” approach to professional goodwill:33 taking the price a willing buyer would pay and a willing seller accept for the business—neither acting under duress—and subtracting from that price the assets of the business. Any excess over assets would represent goodwill. Valuing intangible assets such as this may be more difficult, but it is necessary.
Valuation issues also arise when dealing with retirement or pension plans. The Florida Supreme Court considered a vested retirement plan in Boyett v. Boyett, 703 So. 2d 451, 453 (Fla. 1997), and held that the value of the plan should not include any contributions made after the judgment of dissolution. Boyett also established that although a retirement plan must be valued at the date of dissolution, it should be valued without any penalty for early retirement, reasoning that the parties both “get the benefit of the growth of that value simply because the payments are not received beginning at the time of dissolution.”34 This valuation method does not apply if there is a lump sum payment at the time of distribution;35 presumably then there would be a straightforward present value assigned to the retirement plan. In dicta, the court cautioned that retirement plans are to be evaluated on a case-by-case basis: “Valuation of retirement benefits is fact-intensive and varies depending upon the plan, and the trial judge must determine the equitable valuation with the limitation being the valuation is not to include post-marriage contributions.”36
Setting the cut-off date for assets and liabilities to be considered marital, classifying the property as marital or nonmarital, setting the valuation date for marital property, and valuing marital property—These first four steps are crucial to the distribution process, because it is through them that a court establishes what specific property is available for distribution and what the total value of marital property is. In part two of this article we will explore the actual distribution process, concentrating specifically on those instances where appellate courts have actually approved or ordered an unequal distribution. Also, we will analyze the interplay between equitable distribution and alimony, and discuss when it is appropriate to use alimony to offset an equal distribution. Taken together, the two parts of this article should provide a complete overview and analysis of the entire equitable distribution process.
1 Fla. Stat. §61.075(1).
2 Robertson, 593 So. 2d at 494–95. See also Kelly v. Kelly, 637 So. 2d 43 (Fla. 2d D.C.A. 1994).
3 Robertson, 593 So. 2d 491.
4 Dal Ponte v. Dal Ponte, 692 So. 2d 283, 283 (Fla. 1st D.C.A. 1997). The court denied the former wife’s claim that she was entitled to be reimbursed for mortgage payments she made during the separation.
5 Ray v. Ray, 624 So. 2d 1146 (Fla. 1st D.C.A. 1993).
6 Hill, 675 So. 2d at 170.
7 See, e.g., Heim v. Heim, 712 So. 2d 1238 (Fla 4th D.C.A. 1998).
8 Thibault, 632 So. 2d at 266–67. (“We are of the view that the same rule applies with respect to personal property.”) But see Archer v. Archer, 712 So. 2d 1198, 1199 (Fla. 5th DCA 1998) (holding that the presumption only applies where there has been actual commingling).
9 Fla. Stat. §61.075(6).
10 See Howes v. Howes, 613 So. 2d 551 (Fla. 4th D.C.A. 1993) (holding that automobiles titled in husband’s name but purchased during the marriage with marital funds were marital property).
11 Beers, 23 Fla. L. Weekly D2370.
14 Roberts, 689 So. 2d at 382. (The court noted that it could be proper to consider unsettled contingency fee cases when examining the alimony issue).
15 Thompson, 576 So. 2d at 268.
16 See also Victoria Ho and Kristine Rieger, How to Analyze Marital v. Nonmarital Property in Divorce Proceedings, 70
84 (Oct. 1996).
17 Blase, 704 So. 2d at 742; See also Adkins v. Adkins, 650 So. 2d 61 (Fla. 3d D.C.A. 1994); Parker v. Parker, 610 So. 2d 719 (Fla. 1st D.C.A. 1992).
18 Amato v. Amato, 596 So. 2d 1243, 1244 (Fla. 4th D.C.A. 1992). See also Woodard v. Woodard, 634 So. 2d 782 (Fla. 5th D.C.A. 1994); Crews v. Crews, 536 So. 2d 353 (Fla. 1st D.C.A. 1988); and Walser v. Walser, 473 So. 2d 306 (Fla. 2d D.C.A. 1985).
19 Archer, 712 So. 2d at 1200.
21 Lyons, 687 So. 2d 837.
22 See, e.g., Farrior v. Farrior, 712 So. 2d 1154, 1156 (Fla. 2d D.C.A. 1998); Ray v. Ray, 624 So. 2d 1146, 1148 (Fla. 1st D.C.A. 1993).
23 Farrior, 712 So. 2d at 1157.
25 See also Ho and Rieger, supra note 16.
26 Blase, 704 So. 2d 741.
27 Robbie, 654 So. 2d at 617.
28 Cornette v. Cornette, 704 So. 2d 667, 668 (Fla. 2d D.C.A. 1997).
29 Farrior, 712 So. 2d at 1157.
30 Viera, 698 So. 2d at 1308.
31 See, e.g., Ritter v. Ritter, 690 So. 2d 1372, 1376 (Fla. 2d D.C.A. 1997).
32 See White v. White, 717 So. 2d 89, 89 (Fla. 3d D.C.A. 1998).
33 Makowski v. Makowski, 613 So. 2d 924, 926 (Fla. 3d D.C.A. 1993).
34 Boyett v. Boyett, 703 So. 2d 451, 453 (Fla. 1997).
35 Id. (“Of course. . . this issue is avoided if payment of the retirement asset is made at the time of dissolution either by lump-sum payment or by the beginning of periodic retirement plan payments.”).