Articles Posted in Property Division

The Florida Supreme Court, on March 30, 2017, issued an opinion in Hooker v. Hooker, 220 So.3d 397 (Fla. 2017) finding a Florida horse farm and a New York summer home interspousal gifts and, therefore, subject to equitable distribution as marital property despite a prenuptial agreement in existence.  The prenuptial agreement provided that, upon divorce, each party would retain his or her premarital assets and any appreciation of those assets. Both parties had independent sources of income from family inheritances and they maintained separate finances throughout the marriage.  The parties were married for 23 years.

giftThe Florida horse farm, “Hickstead,” was purchased in 1989 and the Hickstead deed listed “Alice I. Hooker Trust FBO, for the benefit of, Timothy I. Hooker” as the grantee.  Husband and Wife signed the mortgage on Hickstead.  When Hickstead was purchased, it was vacant land and it later became through the course of the marriage a working horse farm with 16 stalls, etc. and the marital home in one wing upstairs and the other wing was the staff apartment.  Wife was “extremely and directly involved in all aspects of the Hickstead residence which was the family’s primary home for approximately 20 years,” according to the findings of the trial court.  Wife was not limited or restricted in any way from incurring the costs and expenses of maintaining and operating a family home at Hickstead, from the Husband’s assets. Wife was provided unfettered access to the stables and horses to pursue her lifelong passion.

The New York summer home, “Lake George,” was purchased in 1997 and was titled only in the Husband’s name and only Husband signed the mortgage.  It was purchased, built and maintained as a summer residence for the family.  The Husband paid the expenses for Lake George with his independent funds and Wife was never a signatory on that account and never had access to that account. However, the Husband sent Wife a card for their tenth wedding anniversary with a picture of the property after the Wife had expressed a desire to have a home up north and both parties searched for a suitable property.

Equitable distribution of assets in Florida divorces can be a complex and divisive issue.  Regarding trusts and divorces, you can walk a fine line between a marital asset and a non-marital asset.  Enhancement in value and appreciation can be a marital asset in certain situations.

Oxley v. Oxley, 695 So.2d 364 (Fla. 4th DCA 1997) is a case that is especially relevant regarding a person placing their property in a revocable trust with themselves as trustee, hiring a financial manager to make the daily investment decisions, and thereby protecting themselves from the Florida Statute § 61.075(6)(a)(1).  This section provides marital assets and liabilities to include the 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.  Meaning, technically, a non-marital trust’s appreciation of value could be considered marital property unless specific requirements are followed.  Oxley spells out how to avoid appreciation being considered in the dissolution of marriage.Tightrope distribution

In Oxley, the parties’ marital income was primarily from trust distributions to the husband which he supplemented with a salary taken as president of a family holding company.  The trust is revocable and was established prior to the marriage by the husband that provides that all income is payable to husband.  The investment decisions for the trust was made for the husband’s exclusive benefit by the trustee based on the advice of the husband’s father and brother.  It had multiple, active investments such as several working oil wells.  On one occasion the husband invested $400,000 of trust funds through a separate money manager.  At the time of the marriage, the trust was valued at $2 million and then increased to $7 million at the time of dissolution; and the increase was attributable to undistributed income that has accumulated during the marriage and upon which he paid personal income tax.  The trust also owned and paid the expenses on the marital home.  The husband also owned 50% of a corporation found to be a gift (technically purchased for a nominal amount) from his father.  As company president, the husband’s activities were largely ministerial and ceremonial, and he left the management and investment decisions to others.  The trial court in Oxley ruled that the trust, including the undistributed income, were non-marital assets, which significantly limited the wife’s equitable distribution.

Equitable distribution in Florida during a divorce can be a frightening prospect.  What are the rules regarding distribution of assets of a trust in a divorce?  Does the divorce court have the authority to distribute trust assets?

AssetsThe appellate courts in Florida have addressed this issue.  The appellate court held that without consent from all beneficiaries to the trust, the trial court did not have the authority to distribute any asset of the trust.  See Sylvester v. Sylvester, 557 So.2d 599, 600 (Fla. 4th DCA 1990).  In Sylvester, the court held that the trial court’s finding that the irrevocable trust, which was the only source from which the husband could comply with the judgment, could be terminated by husband at any time, was erroneous due to the court’s failure to have all indispensable parties before it.  The trust would have to be before the court joined with the trustee and beneficiaries.

Similarly, in Minsky v. Minsky, 779 So.2d 375 (Fla. 2nd DCA 2000), the appellate court reversed the determination that trust funds are a marital asset and the resulting equitable distribution in a dissolution action.  The trial court incorrectly determined that because the parties had used the trust accounts as marital funds, the funds had “taken on the nature of a marital asset” and awarded the trust funds to the wife.  The appellate court indicated that, in effect, the trial court dissolved the trust created for the children’s benefit and the husband as trustee and declared it a marital asset.  The court held that the trial court does not have jurisdiction to adjudicate property rights of nonparties.

In a Florida divorce case, sometimes, a marital asset can become non-marital property of one spouse by contract.  Or one spouse can become the beneficial owner of marital property by transferring it to an irrevocable trust.

PropertyIn Nelson v. Nelson, 206 So.3d 818 (Fla. 2nd DCA 2016), a husband and wife transferred an out-of-state home to an irrevocable trust that had the wife as sole trustee.  The appellate court ruled that because the husband waived all right to alter, amend, modify, revoke, or terminate the trust, and the trust instrument did not contain a provision dissolving the trust upon divorce, the trust was irrevocable.  The court ruled that the out-of-state home was not marital property subject to equitable distribution in a divorce.  Neither the wife nor the beneficiary daughter had applied for modification or revocation of the trust, so the court could not dissolve the trust.

This case illustrates an example of how property can be classified in a divorce.  When the husband bought the out-of-state property and jointly titled it with his wife, the home became marital property.  When the husband transferred the home to the trust, it ceased being marital property and became non-marital.  In addition, the Nelson court cites to Hansen v. Bothe, 10 So.3d 213 (Fla. 2nd DCA 2009) regarding the Former Husband’s Trust instrument not containing a provision dissolving the Trust upon divorce.  In Hansen, the court held that divorce of husband and wife who were co-settlors and co-trustees of a revocable trust, did not terminate the trust even though wife relinquished any rights she had under the trust as part of the divorce.  The trust in Hansen contained no provision terminating it upon divorce of co-settlors, and the trust explicitly provided for replacement trustees in the event the original trustees ceased to serve.

Non-marital assets and liabilities are defined in Florida Family Law as 1) assets acquired and liabilities incurred by either party prior to the marriage, and assets acquired and liabilities incurred in exchange for such assets and liabilities; 2) Assets acquired separately by either party by noninterspousal gift, bequest, devise, or descent, and assets acquired in exchange for such assets; 3) 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; 4) assets 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.  See Fla. Stat. § 61.075(6)(b)(1-4).

In a dissolution of marriage case, the court must set apart each spouse’s non-marital assets and liabilities and marital assets and liabilities and must begin with the premise that the distribution should be equal absent justification for unequal distribution pursuant to factors under the statute.  See Fla. Stat. § 61.075(1).  Assets acquired before marriage are not marital assets and remain the property of the owner spouse in the absence of evidence of a gift or conveyance of the assets to the owner’s spouse.  See Moss v. Moss, 829 So.2d 302 (Fla. 5th DCA 2002); see also Canakaris v. Canakaris, 382 So.2d 1197 (Fla. 1980).  Essentially, the court in Horton v. Horton, 433 So.2d 1386 (Fla. 5th DCA 1983) stated:

“When a marriage partner brings his or her own property to the marriage and does not make a transfer of the asset or any portion of it to the spouse then that asset remains separate property.  Upon dissolution of the marriage the asset is still owned by the original owner.  Unless the asset, or a portion of it, is awarded as lump sum alimony then the court must recognize the proper ownership of the property and not take it from the owner.”

For sale signWhat happens to real estate or property that you jointly own when you get a divorce in Florida?  How does the Court handle your property when you and your spouse can’t agree on what to do?  How can it be distributed between you and your spouse?  In divorces, the court will partition your property absent an agreement as to the contrary.  Partition means simply “to divide into parts.”

The Court cannot order partition of your property without it being alleged in your dissolution of marriage petition.  Florida courts have long held that a judge may partition the jointly-owned property of the parties in a divorce action only if the due process requirements of Chapter 64, Florida Statutes, relating to partition are met.  See Sanders v. Sanders, 351 So.2d 1156 (Fla. 2nd DCA 1977).  The complaint for partition can be incorporated into a divorce petition and no separate filing is needed.  F.S. § 64.041 specifies that the complaint must allege a description of the property, the names and places of residence of the owners, and the share held by each owner.  The partition complaint must be filed in the county where the property is located.

Typically, the parties will agree on a real estate broker to list the property for sale at current fair market price and the parties will split the proceeds according to the parties’ interest in the property (taking into account the costs and expenses put into the property) unless an agreement is made for one party to refinance the home and pay the opposing party their share.  After a divorce, property automatically converts into a tenancy in common and each owner has the right to sell, lease, or mortgage their interest in property.  See F.S. § 689.15.

You may wonder how Florida courts make a decision on what is income and what is not in divorce cases.  In addition, you may wonder how business income is considered in divorce cases by the courts.  The case of Marchek v. Marchek, 159 So.3d 1025 (2nd DCA 2015) gives a great example of what can be considered income, especially when it comes to business income.  In this case, the husband appeals a final judgment of dissolution of marriage to his wife.  The court reversed an equalizer payment of $35,777 to the wife because there was not competent, substantial evidence supporting the court’s valuation of the business income.

business caculateThe husband was an electrician that owned an electrical contracting business where the wife worked handling much of the administration such as bookkeeping, payroll, and accounts receivable for a time.  As of the trial date, the business had a pending job for which it billed $100,000 and accounts receivable of $40,000, some of which stemmed from the pending job.

The problem was the $100,000 for the pending job was the gross amount for the job, NOT a net amount.  The $40,000 accounts receivable figure was the amount the business had already received including the $100,000 job and any others from that same year, and the figure was still only a gross amount, not a net amount.

contract agreementCouples in Jacksonville and the Duval County area may need asset protection options in the event of divorce to eliminate costly litigation. A prenuptial or postnuptial agreement or even irrevocable trusts are great options. However, it is important that an experienced Family Law attorney constructs and reviews these documents.

A prenuptial agreement is an agreement between prospective spouses made in contemplation of marriage and to be effective upon marriage. See Florida Statutes section 61.079(2)(a). A postnuptial agreement is an agreement between spouses who are already married that is effective immediately upon signing. Both agreements are signed with the understanding that they will determine asset and property distribution in the event of divorce, among other things.

Parties to a premarital agreement may contract with respect to the rights and obligations of each of the parties in any property of either or both of them whenever and wherever acquired or located; the right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property; the disposition of property upon separation, marital dissolution, death, or the occurrence of nonoccurrence of any other event; the establishment, modification, waiver or elimination of spousal support; the making of a will, trust, or other arrangement to carry out the provisions of the agreement; the ownership rights in and disposition of the death benefit from a life insurance policy; the choice of law governing the construction of the agreement; and any other matter, including their personal rights and obligations, not in violation of either the public policy of Florida or a law imposing a criminal penalty. See Florida Statutes section 61.079(4)(a)(1-8). In contemplation of a premarital agreement being signed, there must be a fair and reasonable disclosure of the property or financial obligations of the other party.

Marriage has long been described as the union of two people, which in the end gives rise to solidarity of purpose and existence, creating one stronger unit.  With the emphasis put on the union, you can imagine that undoing the union is serious business.  During divorces, emotions run high for different reasons.  The financial aspect of ending the marriage relationship is high on the list of stressors.  For example, if a household brings in $100,000 per year between the husband and the wife, splitting that income in two and trying to maintain the same standard of living is hard to to do.  As a Jacksonville divorce lawyer, I’ve encountered this dilemma many times.  Intertwined in the issue of income splitting is the issue of dividing marital debt (and marital assets, but in this article the focus will be on marital debt).

Marital Debt

Marital Debt

According to Florida Statute 61.075, “All assets acquired and liabilities incurred by either spouse subsequent to the date of the marriage and not specifically established as non-marital assets or liabilities are presumed to be marital assets and liabilities.”  In other words, both parties are responsible for debt created by one or both of them, unless it can be shown that one of them should be solely responsible for the debt.  This means proving that it is non-marital debt.  The person who wants the debt to be considered non-marital debt has the burden to prove that it is non-marital debt.

Here’s something that’s not news to anyone going through the process: divorce can be expensive. When a couple decides it’s time to part ways, it is almost always for emotional reasons but these issues can quickly morph into fights over money. The result can be financial devastation even in splits that started amicably. Everybody loses, except the attorneys.

The good news is that it doesn’t have to be this way. Divorce doesn’t have to destroy both parties financially but the decision rests in their hands.

Though it’s often hard to do, a divorce should be unemotional. There are years of hurt and anger built up, but the split needs to be seen as a business decision. Financial decisions should be made by keeping your emotions outside of the legal process, whether through therapy or exercise.

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