Under Maryland divorce law, all marital property is subject to an equitable division when the couple divorces. One question that occasionally arises with high net worth divorces is whether the appreciation in the value of separately held assets can be considered marital property. Assume, for example, that, before being married, one spouse owned $50,000 in stock holdings. Also, let’s assume that, after the marriage, the stocks remained separately owned and also that there was no commingling of the assets or use of the monies from the stock portfolio for marital purposes. Finally, let’s assume that during the marriage, the stock holdings increased in value to $200,000.
The question is, if the couple divorces, can the appreciation in value of $150,000 be considered “marital” property that must be equitably divided between the spouses?
Under Maryland case law, the answer depends on whether the appreciation in value is due to passive or active efforts of the asset-owning spouse. The recent case of Innerbichler v. Innerbichler, 752 A. 2d 291 (Md. Court of Special Appeals 2000) provides a good explanation. In that case, the husband owned a small business which he started just prior to the marriage in 1983. As the court described, in 1983, the business had two employees, operated out of one owner’s kitchen, possessed operating equipment consisting of two electric typewriters, a bookcase, a file cabinet, a conference table, and chairs and had revenues of about $52,000. By 1997, the business had grown, moved into substantial office space and earned $51 million for the fiscal year.
According to the court, the evidence showed that all of the appreciation in the value of the business was because of the ACTIVE efforts of the husband. As such, the appreciation in value was deemed to be marital property subject to division.
By contrast, the court noted several Maryland cases where the appreciation in the value of separately held assets was through passive inactivity. In those cases, the appreciation in value was deemed to NOT be marital property subject to equitable division upon divorce. So, for example, in Rosenberg v. Rosenberg, 497 A. 2d 485 (Md. Court of Special Appeals 1985), no marital property was found where the husband’s separately held stock increased in value during the marriage. The court held that the wife failed to show that the increased value of the stock was caused by the “personal efforts” or that either she or the husband directly or indirectly contributed to the increased value of the stock.
With these rules in mind, we can return to our example of the stock portfolio originally worth $50,000 before the marriage. The increase in value will not be deemed marital property unless one or both spouses contribute in some significant way to the increase. This might be true if one or both spouses were, for example, stock or day traders and actively engaged in trades during the marriage. However, if there was little effort made with respect to the portfolio and the appreciation was due to the efforts of others, then the increase in value will not be deemed marital property.
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