Leider v. Leider
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IN THE DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FIFTH DISTRICT
JANUARY TERM 2010
KATHLEEN N. LEIDER,
Appellant,
v.
Case No. 5D08-2136
JACK S. LEIDER,
Appellee.
________________________________/
Opinion filed April 16, 2010
Appeal from the Circuit Court
for Orange County,
Robert Evans, Judge.
Shannon McLin Carlyle and Christopher V.
Carlyle, of The Carlyle Appellate Law Firm,
The Villages, for Appellant.
Marcia K. Lippincott, of Marcia K.
Lippincott, P.A., Lake Mary, for Appellee.
SAWAYA, J.
Kathleen N. Leider (Wife) appeals a final judgment of dissolution of marriage,
contending that the trial court erred in failing to include in its equitable distribution award
the value appreciation of a beach house owned by Jack S. Leider (Husband) prior to the
marriage. Wife argues that regardless of the amount of marital funds used to pay the
mortgage, the expenditure of marital funds converts the entire appreciated value of the
beach house to a marital asset subject to equitable distribution. Husband argues that
the mortgage payments did not enhance the value of the property and, therefore, the
trial court was correct in refusing to award Wife any share in the appreciated value of
the home. Because the trial court utilized a methodology that did not award the wife an
appropriate share of the appreciated value, we reverse the award and remand for
reconsideration under the proper legal standard.
We note at the outset that Wife also appeals the trial court’s ruling that no
improvement in value resulted from the couple’s expenditure of marital labor and funds
on the property to make certain repairs. As we will subsequently explain, that ruling is
supported by competent substantial evidence and so our analysis will focus on the issue
regarding the proper methodology to be applied to establish the equitable distribution of
value appreciation of non-marital property caused by the expenditure of marital funds
during the marriage to pay a mortgage encumbering the property.
The parties were married in October 1997. Prior to the marriage, in January
1994, Husband purchased a beach house in Fernandina Beach, Florida, for $146,000.
He financed the property with a $131,400 mortgage. Wife made no contributions to the
beach house prior to the marriage. At the time of their marriage, the appraised value of
the beach house was $150,000.
The couple lived in California for approximately six years of their marriage. They
had two children. In 2002, Wife became a stay-at-home mother, and the family moved
to Florida for Husband to pursue a job opportunity.
Husband is employed in
construction, and during the marriage he used his professional experience to work on
the beach house. According to Wife, the beach house required a significant amount of
upkeep during the marriage: “The house is an older home that sits directly oceanfront,
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so every year, there was just something that needed to be replaced, either water
damage and walls, leaky windows, general upkeep. Just various projects that needed
to be performed over those years.” Husband testified that the repairs made to the beach
house during the marriage were not improvements.
The couple maintained one joint checking account with marital funds. Although
they rented out the beach house, it never generated enough income to pay for itself.
During the course of the marriage, the couple used marital funds from their joint account
to pay for repairs, the mortgage (principal and interest), the management fees, and the
homeowner’s association dues.
After setting off the rental income, the trial court
specifically found that $54,962 was spent for these purposes, and of this amount,
$40,000 was expended for repairs, which did not contribute to the appreciation in value
of the house, and that $14,000 was spent to pay the mortgage balance.1
As to the appreciation in value of the house, Wife’s counsel introduced into
evidence, with a stipulation from Husband’s counsel, an appraisal that, as of July 28,
2006, valued the beach house at $805,000. Husband presented no evidence about the
value of the beach house, and he presented no evidence as to what portion of the
increased value in the house was due solely to passive appreciation. Husband testified
that, in his opinion, the major repairs he performed on the beach house “weren’t value
increased repairs. These were repairs to keep the rental income maintained and/or
keep our ability to use it.”
1
In the final judgment, the trial court appears to have used the term “mortgage
balance” to refer to only the principal balance owing on the mortgage. This term more
appropriately references both the principal and interest remaining, and that is the usage
this opinion adopts.
3
The trial court found the beach house was a non-marital asset and that the only
marital asset the couple derived from the beach house was $14,000 they spent to pay
the mortgage balance. Instead of awarding one-half of this amount to Wife, the trial
court awarded her $27,481, which is one-half of the total amount Wife contends the
couple spent on the beach house. Although not expressly stated, the trial court’s actual
ruling seems to be that the money the couple spent on the beach house, including
mortgage payments and funds for repairs, was a marital asset ($54,962), and Wife was
awarded an equitable distribution of one-half of that amount.
The trial court discussed the beach house at the end of the trial:
I’m saying, its not marital. It hasn’t been converted to marital.
There isn’t enough evidence to support it being converted to
marital despite the fact that he went there two or three times
and conducted some repairs. Had they added a room on,
had they configured the property differently, I mean, this was
a passive increase in that property. You know what
happened with the beach property in Florida in that period of
time. You know, had the property gone down in value, I
doubt that you would have been here arguing that you owed
half the deficiency but fortunately, that hasn’t happened
recently, at least in Florida.
The court’s written judgment of dissolution of marriage provides that the beach house is
non-marital and only the amount paid towards the mortgage balance is a marital asset.
D. The Husband purchased real property prior to the
marriage in Fernandina Beach Florida that was never titled
in other than the Husband’s individual name. The parties
used the property as a vacation home; and though some
repairs were made to the property, repairs are not in the
nature of improvements increasing the value of the property.
The Wife argued that the parties had a net expenditure
(mortgage payments rental income, repairs and tax consequences, among others were used to calculate this amount)
of $54,962.00 of marital funds during the marriage
associated with the ownership of the property. The Husband
argued that the expenditure, similarly calculated was
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approximately $50,000. The court finds the property to be
the separate non-marital asset of the Husband, as the only
increase in the value of the property was the paydown of the
mortgage balance in the approximate amount of $14,000.00.
That sum is a marital asset; but the court awards to the wife
the total sum of $27,481.00, representing one half of her
calculation of the marital funds expended, including the
reduction of the mortgage balance. As reflected in Exhibit A,
the Husband has already received his $27,481.00 share of
the marital funds expended in that he is keeping the property
and thereby has received the benefit thereof.
The governing statute is section 61.075(5)(a)2., Florida Statutes (2004), which
provides that a marital asset can be “[t]he enhancement in value and appreciation of
non-marital 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.” However, as the court explained in Martin v. Martin, 923 So. 2d 1236
(Fla. 1st DCA 2006), “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’ that becomes a marital asset.” Id. at 1238-39
(quoting Strickland v. Strickland, 670 So. 2d 142, 143 (Fla. 1st DCA 1996)); see also
Wilson v. Wilson, 992 So. 2d 395, 398 (Fla. 1st DCA 2008).
The trial court’s factual finding regarding equitable distribution is reviewed under
an abuse of discretion standard to determine whether it is supported by competent,
substantial evidence. Farrior v. Farrior, 736 So. 2d 1177, 1179 (Fla. 1999); Buxton v.
Buxton, 963 So. 2d 950, 953 (Fla. 2d DCA 2007); Macaluso v. Macaluso, 523 So. 2d
615, 617 (Fla. 2d DCA 1988).
As we have previously indicated, because there is
sufficient evidence in the record to support the trial court’s conclusion that the repairs
performed by marital labor and with marital funds were not improvements and did not
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contribute to the appreciation in value of the beach house, this court is required to affirm
regarding the nature of the repairs. Moss v. Moss, 829 So. 2d 302, 304 (Fla. 5th DCA
2002) (citing Adkins v. Adkins, 650 So. 2d 61, 62 (Fla. 3d DCA 1994) (on rehearing)). It
follows that since the marital labor did not convert the appreciated value of the beach
house to a marital asset, the fact that marital funds financed those repairs also would
not convert the appreciated value to a marital asset. The question remaining for this
court is whether the trial court erred in ruling that the $14,000 expenditure of marital
funds to pay the mortgage balance did not convert all or a portion of the appreciated
value of the beach house into a marital asset.
The reasoning employed by the trial court in reaching its conclusion is generally
consistent with decisions rendered by the Second District Court of Appeal. See Kaaa v.
Kaaa, 9 So. 3d 756 (Fla. 2d DCA 2009); Mitchell v. Mitchell, 841 So. 2d 564 (Fla. 2d
DCA 2003). These decisions essentially hold that only the actual amounts spent toward
the mortgage principal reduction are marital assets subject to equitable distribution, but
the increase in value of the property resulting from passive appreciation, such as
“inflation or fortuitous market forces,” is not a marital asset. Mitchell, 841 So 2d at 567.
We disagree with this approach because it often results in inequitable outcomes for the
non-owner spouse, as demonstrated by the facts in Kaaa.
The First District Court of Appeal in Wilson and Stevens v. Stevens, 651 So. 2d
1306 (Fla. 1st DCA 1995), has adopted a different approach to resolving the issue of
passive appreciation of non-marital assets encumbered by a mortgage paid with marital
funds. In Stevens, the court explained:
Equitable distribution of marital assets should take
into account the appreciated value of a non-marital asset
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caused by the expenditure of marital funds or labor,
including the parties’ management, oversight, or contribution
to principal, Young v. Young, 606 So. 2d 1267, 1270 (Fla.
1st DCA 1992); Massis v. Massis, 551 So. 2d 587, 589 (Fla.
1st DCA 1989), as well as an appropriate portion of any
appreciation of a non-marital asset caused by the effects of
inflation and market conditions, where “some portion of the
current value . . . must reasonably be classified as a marital
asset.” Sanders v. Sanders, 547 So. 2d 1014, 1016 (Fla. 1st
DCA 1989).
An 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. Each spouse’s income is deemed
marital funds. Here the trial court erred in excluding from the
equitable distribution plan the entire amount by which the
[husband’s non-marital real] property appreciated in value
during the marriage, since marital funds were used to make
the mortgage payments and pay the taxes. The appreciation, if any, should be allocated between the parties by a
“reasonable proration of the appreciated value.” Sanders, 547
So. 2d at 1016.
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.
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651 So. 2d at 1307-08. Although we agree with much of what the court said in Stevens,
we do not agree with the specific methodology utilized by the court to calculate the
portion of appreciated value that constitutes a marital asset when marital funds are used
to pay a mortgage encumbering non-marital property.
The correct application of section 61.075(5)(a)2., Florida Statutes (2004),
requires the court to directly correlate the amount of value appreciation of the asset
during the marriage to the percentage of the mortgage (principal and interest) paid with
marital funds during the course of the marriage.2 The value appreciation is determined
by subtracting the value of the asset at the time of the marriage from the value of the
asset at the time of dissolution. The percentage of the mortgage paid with marital funds
is determined by dividing the amount of mortgage payments made with marital funds by
the amount of the unpaid principal balance of the mortgage at the time of the marriage.
This percentage3 is then multiplied by the amount of the value appreciation to arrive at
the total amount of the marital asset that is directly attributable to the mortgage
payments made with marital funds. This total figure should then be divided by two, with
each spouse receiving credit for half. For example, if non-marital property is valued at
$100,000 at the time of the marriage and valued at $600,000 at the time of dissolution,
the value appreciation is $500,000. If that asset was encumbered with a mortgage that
had a principal balance of $50,000 at the time of the marriage and the mortgage
payments (principal and interest) made with marital funds during the marriage totaled
2
This formula only applies to situations where the non-marital asset appreciates
in value.
3
The percentage is capped at 100% in instances where the total amount of
mortgage payments made with marital funds exceeds the balance of the mortgage at
the time of the marriage.
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$5,000, the percentage of the mortgage paid with marital funds is ten percent. Ten
percent of $500,000 is $50,000, and each spouse will be entitled, in equitable
distribution, to one-half of that amount, which is $25,000. In addition, each spouse will
also be given credit for one-half of the actual amount of marital funds expended to pay
the mortgage.
The non-owner spouse has the burden of establishing the value appreciation by
presenting evidence of the value of the asset at the time of the marriage and the value
of the asset at the time of the dissolution. The non-owner spouse also has the burden
of establishing the amount of marital funds utilized to make mortgage payments and the
outstanding balance of the mortgage at the time of the marriage. Once established, the
amount of the value appreciation that constitutes a marital asset is presumed to be
correct. The trial court may, in its discretion, deviate from the presumptively correct
amount based on equitable factors that may include those found in section 61.075,
Florida Statutes (2009), see Rafanello v. Bode, 21 So. 3d 867, 870 (Fla. 4th DCA 2009),
provided that findings of fact are stated in the final judgment that explain and justify the
reasons for the deviation.4
4
For example, the owner spouse may have paid a substantial portion of the
mortgage prior to the marriage, leaving a relatively small outstanding balance that is
paid with marital funds, and the increase in value during the marriage is largely caused
by market forces unrelated to the expenditure of marital funds to pay the outstanding
balance. The trial court in its discretion may adjust the presumptive amount downward
in consideration of these factors. As another example, the trial court could take into
account the nature of the mortgage involved (interest only, principal only, interest and
principal, negative amortization, etc.) in determining whether deviation from the
presumptively correct amount is necessary to achieve an equitable result. These are
but two exemplars where deviation from the presumptive amount may be an appropriate
exercise of the trial court’s discretion. Our discussion of them does not exclude others.
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This methodology affords the non-owner spouse a return on his or her
investment of marital funds utilized to satisfy the mortgage that is more closely
correlated to the actual amounts of marital funds expended for that purpose. It properly
places the burden on the non-owner spouse to prove entitlement to a portion of the
value appreciation of a non-marital asset, and it gives the trial court the ability to deviate
from the calculations based on equitable factors that may be present in any particular
case that requires a measure of judicial discretion in order to achieve a fair allocation.
We note, parenthetically, that the Second District Court in Kaaa certified conflict
with the First District Court in Stevens and that the Florida Supreme Court has accepted
jurisdiction. Because the methodology we adopt differs from Kaaa and Stevens, we
certify conflict with those decisions.
Wife points to this court’s decision in Sizemore v. Sizemore, 767 So. 2d 545 (Fla.
5th DCA 2000), as authority for declaring the total amount of value appreciation to be a
marital asset based on the mortgage payments of $14,000 made with marital funds.
We believe that Sizemore is clearly distinguishable. It does not involve payment of a
mortgage with marital funds encumbering non-marital property; rather, it involves marital
labor expended over the course of many years that literally changed most of the
holdings in a non-marital brokerage account. In Sizemore, the parties were married
twice to each other and both marriages combined spanned twenty-four years. Prior to
the first marriage, the wife inherited a brokerage account that she allowed the husband
to manage over the term of the first marriage, during the period they were divorced, and
during the term of their second marriage. The wife also participated in the management
of the account and the husband’s name was placed on the account checks. In fact, the
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holdings in the account almost entirely changed over the years the husband managed
the account. Based on these facts, this court held that the increased value of the
account was a marital asset. Although the opinion states that “[a]sset appreciation is
subject to equitable distribution where marital labor contributes to its value, even where
the increased value is primarily created by passive inflation,” we believe that this
language is overly broad dicta that contributes nothing to the conclusion reached by this
court in that case. Id. at 547. We also note that Sizemore has not been cited by this
court in any subsequent opinion and that the conclusion this court reached in Sizemore
was based on the particular facts and circumstances of the case. Hence, neither do we
find Sizemore controlling here, nor do we perceive any inconsistency with the
methodology we adopt and prior opinions emanating from this court.
We affirm that part of the final judgment holding that the funds spent for repairs
were not improvements that contributed to the value appreciation of the house. We
reverse that part of the final judgment awarding the wife $27,481 as a marital asset and
remand for further proceedings consistent with this opinion to determine whether part of
the value appreciation of the house that occurred during the marriage should be
awarded to Wife based on the mortgage payments made with marital funds.
AFFIRMED in part; REVERSED in part; and REMANDED; CONFLICT
CERTIFIED.
PALMER and EVANDER, JJ., concur.
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