Non-Marital Assets in Divorce – It’s Confusing

Florida has a statute to address almost everything. Divorce is no exception. Chapter 61 of Florida Statutes covers dissolution of marriage, child support, alimony and distribution of property in a divorce. Florida applies a concept known as equitable distribution and classifies assets as marital and non-marital. 

Section 61.075 provides the rules for equitable distribution. Equitable distribution is a concept applied by courts for years before the legislature adopted the statute. Under equitable distribution, the court first decides which assets are marital and which are non-marital. The statute mandates the court start with the premise that marital assets be divided equally. The statute also provides factors for the court to consider that might justify unequal distribution.

The statute is an effort to reduce argument over property division in a divorce, but it does not get the job done. The statute itself says there are factors that might justify unequal distribution and judges get to hear arguments on that ad nauseum.

Marital assets do not include assets which one spouse received by inheritance or gift from someone other than the spouse. Marital assets include other assets acquired during the marriage and enhancement in value of non-marital assets resulting from either party or expenditure of marital funds during the marriage. It can be a shock to a spouse who successfully invested his or her inheritance to find that the original inheritance is non-marital but all the growth due to savvy investment management is marital.

A good example of growth of non-marital assets being marital is the case of Robbie v. Robbie. Joe Robbie Sr. gave his son Michael a 9.5% share in Miami Sports Corporation, which had ownership interest in a number of entities including the Miami Dolphins. The gift was made before Michael married. Michael was held out to the world as general manager of the Miami Dolphins and during the marriage the value of his share in the corporation significantly increased in value. There was some question as to Michael’s actual role with the corporation.

Michael argued the increase in value was passive and that he really did not do anything as a general manager. The court disagreed. The judge ruled Michael’s work as general manager contributed to the increase in value and it was not passive.  Throwing Michael a bone, the trial judge decided that Michael should get 65% of the increase, concluding Michael’s efforts were responsible. 

The appellate court agreed the growth was marital but reversed on unequal distribution. The court explained it agreed neither Michael nor his wife had much to do with the increase, so it should be divided 50/50. The case looks like Michael tried to argue he had nothing to do with the increase so it should all be his but, also that since he had something to do with the increase most should be his. By arguing both sides of that coin, Michael may have sealed his own fate.

There are many decisions where passive growth is awarded to the spouse who owns the non-marital asset. The argument in many of those cases is over whether growth is really passive or if the spouse with the non-marital asset managed it to growth. As you can imagine, there is no argument over management to loss. There are a lot of Florida cases deciding a small amount of management is not enough to make appreciation in value of a non-marital asset marital. 

In Oxley v. Oxley, the court agreed with the husband that his 50% interest in a corporation of which he was president and a trust were his alone. The wife’s claim was to growth in value during marriage, which totaled over five million dollars for the corporation and several million dollars for the trust. A trustee managed the trust and the court found the husband was really not involved with trust management so the trust growth was non-marital.

The corporation was considered next. Evidence confirmed the husband did not actively manage the business but relied on business managers who made decisions for him. Growth in value was due to decisions of the business managers and market forces. Unlike the court in the Robbie case, the court decided all the appreciation was non-marital.

Steele v. Steele argued over growth of a 401k. The husband had a pre-marital 401k which apparently had no post-marital contributions. The husband transferred funds within the plan to three different investment options during a six-year marriage. The court ruled those three transfers were not enough management to make growth marital and gave husband everything in the 401k.

Chapman v. Chapman shows the other side of stock accounts. In Chapman, the husband argued his only action with respect to a premarital stock account was replacing investment grade bonds with other investment grade bonds as bonds matured. Maybe that would have worked, but the court explained records showed the husband actively traded stocks and bonds in the account throughout the marriage and concluded the growth in value was a marital asset. 

The legislature made a commendable effort to clarify marital and non-marital assets in divorce. The effort fails to stop all argument and, as can be seen from some of the court decisions, similar facts can reach different results. This is an area where good legal advice is critical.