Kaaa! That’s not a scream, it’s a Hawaiian name pronounced “Ka-ah-ah”. Florida divorce lawyers know Kaaa as a famous Florida Supreme Court case which changed equitable distribution here. Kaaa had its faults, but recently the Governor signed a bill to fix it.
Florida Property Divisions
I’ve written about property division before. Property division, or equitable distribution as it is called in Florida, is governed by statute and case law.
Generally, courts set apart to each spouse their non-marital assets and debts, and then distribute the marital assets and debts between the parties.
Marital assets and liabilities include, in part, assets acquired and liabilities incurred during the marriage, individually by either spouse or jointly by them.
Passive appreciation of a nonmarital asset, a house for example, encumbered with a mortgage paid down with marital funds, may be a marital asset the court must equitably distribute.
Can You Split Nonmarital Property?
Passive appreciation of a house without a mortgage, for example, is not subject to division in a divorce. But what about the passive appreciation of a house with a mortgage, where the principal balance of the mortgage has been paid with marital funds?
In 2010, the Florida Supreme Court held that “passive appreciation of a nonmarital asset … is properly considered a marital asset where marital funds or the efforts of either party contributed to the appreciation.”
The Kaaa court recognized that the marital portion of nonmarital house encumbered by a mortgage paid down with marital funds includes two components:
(1) a portion of the enhanced value of the marital asset resulting from the contributions of the nonowner spouse and
(2) a portion of the value of the passive appreciation of that asset that accrued during the marriage.
The Kaaa Problem
The Supreme Court created a formula for courts to use in determining the value of the passive appreciation of nonmarital real property for equitable distribution.
But the Kaaa formula was flawed because there is no relationship between the amount of marital funds used to pay down a mortgage during a marriage, and the passive appreciation of the property.
Also, the Kaaa case required a nonowner spouse to have made contributions to the property as a prerequisite to sharing in the passive appreciation of the property.
A lot of people argued that Kaaa conflicted with our equitable distribution statute, which said marital assets include the enhancement in value and appreciation of nonmarital assets resulting from the use of marital funds.
The Fix Bill
The Family Law Section of the Florida Bar helps create legislation, and also monitors proposals in the Florida Legislature. Members of the Section advise legislators and staff and even testify before the Legislature.
Governor Scott signed a bill to fix Kaaa. The bill amends our equitable distribution statute and establishes a statutory formula for courts to use.
The new statutory formula does not require the nonowner spouse to have made contributions to the property, as required under the Kaaa calculation.
The fix bill also bars the marital portion of nonmarital real property from exceeding the total net equity of the property on the valuation date in the divorce action, and even allows a party to argue that the formula shouldn’t apply.
The new law takes effect July 1, 2018.
The Kaaa fix bill is available here.