What is Active Effort in the Appreciation of Non-marital Assets?

I recently read an article by Jerry Reiss and Michael R. Walsh regarding active efforts and how they are applied to the appreciation of non-marital assets. This article is helpful to parties who had assets prior to the marriage, and those assets appreciated in value during the marriage.  The question becomes:  Does the other spouse have a claim to the asset?

To begin, any asset acquired during the marriage is considered marital property. However, some parties may have owned assets prior to the marriage. Generally speaking, the party who owned the asset prior to the marriage will take the position the asset is still non-marital.  Conversely, the other party usually takes the position that the appreciation in the asset changes the property to marital, thus the party has a monetary interest in the property. 

When analyzing the appreciation of an asset, the Court will look at the work or effort used to increase the value of the asset.  The effort is distinguished into two categories, passive or active. Active appreciation occurs when a party can show an asset appreciated significantly as a direct result of effort or active management. Passive effort, then, is when an asset increases in value, but not necessarily due to work or effort on the part of either party.  An example of active appreciation:  Wife purchased a home prior to the marriage, the fair market value of which is $100,000.00.  After the marriage, Wife and Husband renovate the home, using marital funds to do so.  The couple also spend time physically completing some of the renovations together, increasing the value of the home to $150,000.00.  If one of the parties filed for divorce, Husband would have a claim to the appreciation in the value of the home.  An example of passive appreciation:  same facts as above, but no marital funds are spent on the home and no renovations are made.  The home appreciates in value to $125,000.00.  This appreciation is due to the housing market.  Husband does not have a claim to the appreciation.

Effort is further defined as tangential and foundation. Tangential effort occurs when appreciation is somewhat related to the effort of a party, but the appreciation could have also occurred without the effort. For example, the article states the below.

"...if substantial effort was extended, in actively managing a pool of funds, then it is not active improvement if one can show that the effort was only tangential to the growth itself. This occurs when great effort was used to obtain a market result that could have been achieved in any event with little or no effort."

Foundation effort is determined when "both marital and non-marital efforts contribute to the result."  For example, a party is employed prior to the marriage and had accrued benefits such as pension, 401k, vacation, stock options, etc.  Then that party enters into the marriage and continues to accrue and contribute to these benefits.  The benefits accrued during the marriage were due to foundation effort, and thus the other party would be entitled to half of the benefits.

As you can see, the determination between marital and non-marital assets can be complex. To determine how these laws apply to your case, click below to schedule a complimentary consultation.