Equitable distribution of property in a Connecticut divorce may become more complex when an asset has actively or passively appreciated in value. Related issues in Connecticut dissolution diverge from those in many other states because of the unique nature of property division in the Constitution State.
Nature of active or passive appreciation
Over time, the value of an asset usually increases or decreases, and valuation change is either driven by active or passive forces. Active appreciation in this context often means that the spouse-owner (“titled spouse” or “propertied spouse”) – or sometimes the nontitled spouse – did something to enrich the value. For example, they may have had a pool or tennis court installed on residential premises, restored a valuable antique or made wise management decisions in a family business or as the executive of a major corporation.
Active participation in property enrichment can be through financial investment, physical effort or application of intellectual skills.
In the divorce context, passive appreciation occurs when the litigants did nothing to drive an increase in value, but it still rose. Passive increases in property value can come from the actions of third parties or from other outside forces. For example, the value of farmland could rise because a metropolitan area has expanded into the countryside, making agricultural land more attractive to developers. Or asset values could go up because of external market pressures such as inflation or heightened demand over limited supply.
Other external pressures that could passively drive appreciation (or depreciation) of real estate or other kinds of assets could include government policy, tax or zoning laws, demographic changes, physical alterations in nearby private or public real estate, economic conditions, environmental problems, location, assessments, fluctuations in market demand or other factors.
Why does the distinction matter?
Like Connecticut, most other states are equitable distribution states, meaning the court divides property between divorcing litigants based on principles of fairness. While the law on the subject may vary some among equitable distribution states, in general they categorize assets as either marital (acquired by either or both parties during the marriage) or separate (owned before marriage by one party or received by one of them as a gift or inheritance).
Broadly, in those states marital property is distributable in the divorce and separate property remains with the owner-spouse.
A tricky question in these states is whether and how to divide the appreciation during marriage of separate property. Depending on the state, it probably depends on whether the appreciation was active through the effort of one or both spouses, or was passive. Potentially the increase could become marital property subject to division.
Connecticut has its own take on marital property subject to distribution
Connecticut is unique as compared to other equitable distribution states. It is an all-property, equitable distribution state, meaning all spousal property, whether singly or jointly owned, acquired before or during the marriage, or received through inheritance or gifting, may be considered marital property subject to division between divorcing litigants. CT Gen. Stat. sec. 46b-81(a). This sweeping definition of marital property does not include the concept of separate property, so Connecticut judges can redistribute virtually all property of either litigant. See Bender v. Bender, 258 Conn. 733 (2001).
Then why do appreciation distinctions matter here?
While Connecticut judges do not need to consider appreciation of separate property, courts still must account for appreciation (or depreciation) during property division. Specifically, the court must, along with other listed factors, “consider the contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates.” CT Gen. Stat. sec. 46b-81(c).
A spousal contribution to appreciation is often financial, but nonmonetary contributions can also drive appreciation, in which case fairness may support distribution of value to the nonmonetary contributing litigant. For example, the judge could consider the wife’s care of their children every weekend for three years while the husband left to work on renovation of a second home. Picton v. Picton, 111 Conn.App. 143 (2008); Browning v. Browning, 2018 WL 2749675 (unpublished 2018) (“One party’s nonmonetary contributions that make it possible for the other party to acquire or retain property, or have the effect of preserving or appreciating the value of property, should be considered.”).
Appreciation during divorce proceedings
A context where this comes up is when an asset appreciates or depreciates between the date of separation or the filing of the divorce complaint, and the date of the final order. The Bepler case is instructive. Bepler v. Bepler, 1998 WL 666982 (unpublished 1998).
Significant assets were shares in Capital Group, Inc., the parent corporation of the husband’s employer. The shares were in two classes, each with restrictions and not publicly traded. Spouses of owners were not “permissible owners” and transfers to spouses would trigger company redemption for cash. Still, the court found that despite the restrictions the stock (and its generous dividends) were “present property interest[s] for distribution.”
The husband also had a large share of valuable bank stock. Between the date of the complaint and the trial, the couple’s marital estate had almost doubled to $20 million, most of which was in stock. Noting the lack of appellate court direction on the “distinction of active/passive appreciation,” the court posed the “major issue” as “how to allocate that increase and the efforts regarding that increase.”
Noting that the assets (without an “exceptional intervening circumstance”) should be valued as of the date of divorce, the court found that the $9 million value increase since the complaint’s filing was passive and should be marital property subject to distribution. Despite his contributions as a senior vice president, market forces were responsible for the passive appreciation. The court divided the bank stocks, kept ownership of the company stock with the husband and gave half of future dividends or sales proceeds to the wife.
Our state courts have not said much about the active-passive appreciation distinction in equitable distribution. Considering the wide discretion of Connecticut judges to craft fair property division decisions as well as to choose reasonable valuation methods and to set asset values, the jurisprudence to guide litigants in future divorces will likely continue to evolve.
In the meantime, a knowledgeable family lawyer will know the state of the law and how to present expert and lay evidence relevant to appreciation or depreciation questions.