Equitable Distribution and Improvements to Land You Do Not Own
Recently, I have been giving thought to how increases in separate property values through the active work of a spouse is considered during equitable distribution. As a refresh, the goal of a trial court in divorce is to classify all property owned on the date of separation, value it, and then distribute it between the parties; only marital property is distributed. Generally, increases in value to separate property during the course of a marriage are still separate property. However, the analysis does not end there.
The next step is to determine why that separate property increased in value. Only passive appreciation of separate property can be classified as separate property. There are many ways to define passive increase, but in the realm of real estate, it is most commonly associated with the general increase in land value due to market conditions, also known as a seller’s market. However, active increases are classified as marital. Again, in real estate, this commonly means renovations, repairs, and work done to increase the value of the land. Work and effort are likely the big factors; it is those contributions to the land that classify the value as marital. Additionally, work may not always mean hard labor. Sometimes it is financial or managerial, such as working to manage projects or paying for the labor.
What if that land was never owned by either party? While it may seem odd, there exist situations where the land that a married couple is living on does not belong to them and is not a residential lease. An example is when the couple is living on one spouse’s land owned and titled to a family member. If there are active improvements on the land that increase the property value, who gets that increase in value?
Here, the equitable remedy of a constructive trust would be used. Obviously, the spouse’s family member would be in a better state by taking the increase in value on the land. Also, it would be unfeasible for anyone to somehow revert the increase in value, as it is nontangible. Instead, the trust would be funded by the parties and then distributed according to terms of the final order.
If you are in a situation where there have been increases to property value due to your efforts, a family law specialist with expertise in finances can help you understand how that can affect your case.