In 2009, the Palm Beach Divorce Lawyers of Nugent Zborowski & Bruce represented a husband during a four day trial on issues of alimony and equitable distribution.  One of issues in the case involved whether a cottage in Nova Scotia was a non-marital asset under a prenuptial agreement, or if the cottage was a marital asset subject to equitable distribution.  On February 22, 2012, the Florida Fourth District Court of Appeal reveresed the trial court and accepted the position taken at trial regarding the non-marital status of the cottage.

Previously, the Former Husband and Former Wife entered into a post-marital agreement. The agreement provided that “any assets obtained by either of the parties through inheritance or parental gift, investments acquired from the proceeds of such assets, and any value accruing as a result of the use or investment of such assets [defined as protected assets] would be retained as each party’s separate assets.” However, under one exception to the agreement, protected assets “which are converted into tangible assets and used by the Former Husband and Former Wife would longer be protected.

The Nova Scotia cottage was built by Former Husband’s family. Former Husband and his three siblings each inherited a 25% interest in the cottage. Thereafter, Former Husband withdrew approximately $61,000 from his non-marital trust to purchase his siblings’ respective interests. Throughout the marriage, title to the cottage remained in Former Husband’s name. The parties spent over $62,000 in marital funds to pay for the annual taxes, insurance and improvements to the cottage. The parties also enjoyed the use of the cottage during the marriage.

The trial court concluded that the cottage “lost its non-marital status”, and was thus subject to equitable distribution, because the parties had used the cottage and improved it with marital funds. Once the court determined that the cottage was a marital asset, it equitably distributed it to Former Wife.

On appeal, the Former Husband represented himself and argued, amongst other things, the Former Husband argued that under the terms of the post-nuptial agreement, the cottage remained a non-marital “protected asset” because the cottage was never converted into a tangible asset. Former Wife argued that due to the family’s use of the cottage as well as the expenditure of marital funds to maintain and improve it, the cottage lost its status as a protected asset under the terms of the parties’ agreement.

The Fourth District Court of Appeal agreed with the Former Husband that the Novia Scotia cottage was a non-marital asset under the parties’ post-nuptial agreement.  Macloud v. Macloud, 37 Fla. L. Weekly D476a (Fla. 4th DCA Feb. 22, 2012).

The appellate court’s opinion stated recognized that improvements made to a non-marital asset with marital funds do not convert the subject asset into a marital asset:

We begin our analysis by noting that “[w]here the terms of a marital settlement agreement are clear and unambiguous, the parties’ intent must be gleaned from the four corners of the document.” Jones v. Treasure, 984 So. 2d 634, 636 (Fla. 4th DCA 2008) (citation omitted). According to the plain language of the agreement, the cottage was not only required to be used, it also needed to be converted into a tangible asset before it lost its non-marital “protected asset” status. Conversion is defined as “[t]he act of changing from one form to another; the process of being exchanged.” Black’s Law Dictionary 356 (8th ed. 2004). While it is undisputed that the cottage was used by the parties, it was never converted into some other tangible asset.

Moreover, the act of maintaining or expending marital assets to maintain or improve the cottage did not result in a conversion. See Martin v. Martin, 923 So. 2d 1236, 1238-39 (Fla. 1st DCA 2006) (“[I]mprovements or expenditures of marital funds to a nonmarital asset does not transform the entire asset into a marital asset; rather, it is only the ‘enhancement in value and appreciation’ which becomes a marital asset.”) (citing Strickland v. Strickland, 670 So. 2d 142, 143 (Fla. 1st DCA 1996)). “A party’s conduct regarding inherited real property is distinguishable from the inheritance of money, which can lose its status as a non-marital asset if commingled with marital funds.” Martin, 923 So. 2d at 1238 n.1 (citing Lakin v. Lakin, 901 So. 2d 186, 190 (Fla. 4th DCA 2005)). Accordingly, the trial court erred by designating the Nova Scotia cottage as a marital asset.”

Click here to read the Fourth District Court of Appeal’s opinion in Macloud v. Macloud.

For more information on issues concerning equitable distribution and property splitting, call 561.844.1200 to speak to a Palm Beach County Divorce Lawyer with Nugent Zborowski & Bruce.  Additional equitable distribution and property splitting information is available at the firm’s Florida Property Splitting Information Center.