This case is before the Court for review of the decision of the Second District Court of Appeal in
Kaaa v. Kaaa,
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 $86,500 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 was $12,871.46. In its final judgment, the trial court found that the marital home was Joseph Kaaa’s non-marital 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,
ANALYSIS
We frame the question of law before us as follows:
When a marital home constitutes non-marital real property, but is encumbered by a mortgage that marital funds service, is the value 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,
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 “non-marital 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 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.—
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(5) As used in this section:
(a) “Marital assets and liabilities” include:
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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.
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,
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,
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,
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 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 nonmar-ital 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 mantal 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,
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, market-driven appreciation of the property that accrues during the course of the mar
It is so ordered.
. 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)(l)(b). The language, however, is substantively unchanged.
Notes
. 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.