Stava v. Stava
Citation318 Neb. 32
Date Filed2024-11-15
DocketS-23-249
Cited13 times
StatusPublished
Full Opinion (html_with_citations)
Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/15/2024 09:08 AM CST
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Nebraska Supreme Court Advance Sheets
318 Nebraska Reports
STAVA V. STAVA
Cite as 318 Neb. 32
Larry J. Stava, appellee, v.
Carine F. Stava, appellant.
___ N.W.3d ___
Filed November 15, 2024. No. S-23-249.
1. Divorce: Child Custody: Child Support: Property Division: Alimony:
Attorney Fees: Appeal and Error. In a marital dissolution action, an
appellate court reviews the case de novo on the record to determine
whether there has been an abuse of discretion by the trial judge in his
or her determinations regarding custody, child support, division of prop-
erty, alimony, and attorney fees.
2. Evidence: Appeal and Error. In a review de novo on the record, an
appellate court is required to make independent factual determinations
based upon the record, and the court reaches its own independent con-
clusions with respect to the matters at issue.
3. ____: ____. When evidence is in conflict, the appellate court considers
and may give weight to the fact that the trial court heard and observed
the witnesses and accepted one version of the facts rather than another.
4. Judgments: Appeal and Error. When reviewing questions of law, an
appellate court has an obligation to resolve the questions independently
of the conclusion reached by the trial court.
5. Divorce: Property Division. There is no mathematical formula by
which property awards can be precisely determined, but, generally, a
spouse should be awarded one-third to one-half of the marital estate, the
polestar being fairness and reasonableness as determined by the facts of
each case.
6. ____: ____. Any given property can constitute a mixture of marital and
nonmarital interests; a portion of an asset can be marital property while
another portion can be separate property.
7. Divorce: Property Division: Proof. The burden of proof rests with the
party claiming that the property is nonmarital.
8. Divorce: Property Division. The extent to which the property is marital
versus nonmarital presents a mixed issue of law and fact.
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STAVA V. STAVA
Cite as 318 Neb. 32
9. ____: ____. All property accumulated and acquired by either spouse
during the marriage is, as a general rule, part of the marital estate.
10. ____: ____. Appreciation, be it active or passive, in the marital interest
is always marital; it is simply part of the marital property.
11. Divorce: Property Division: Equity. The equity in property at the time
of marriage is a nonmarital asset which, if established, should be set
aside as separate property.
12. ____: ____: ____. The real value of property is the equity and not the
mere legal title.
13. Divorce: Property Division. Under the “source of funds” rule, acqui-
sition of encumbered property only occurs when and to the extent it
becomes unencumbered by paying off the principal of an encumber-
ing loan.
14. Divorce: Property Division: Mortgages. The use of marital funds to
pay down the mortgage on what was initially separate property acquires
the property during the marriage to the extent the principal is paid, cre-
ating a proportionate marital interest in that property.
15. Divorce: Property Division: Equity. Because the portion of the prop-
erty’s equity created during the marriage with marital funds constitutes
marital property, the appreciation on that equity, whether it be passive or
active, is also marital property.
Petition for further review from the Court of Appeals,
Moore, Bishop, and Arterburn, Judges, on appeal thereto
from the District Court for Washington County, John E.
Samson, Judge. Judgment of Court of Appeals affirmed in part,
and in part reversed and remanded with directions.
David Pontier, of Koenig | Dunne, P.C., L.L.O., for appellant.
Donald A. Roberts, of Roberts Law, L.L.C., for appellee.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Freudenberg, J.
INTRODUCTION
The husband filed a complaint for dissolution after approxi-
mately 18 years of marriage. The parties dispute on appeal
whether two adjacent lots are marital property. One lot encom-
passed what later became the marital home. On the other lot,
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318 Nebraska Reports
STAVA V. STAVA
Cite as 318 Neb. 32
the parties built a barn before the marriage for the wife to oper-
ate a horse training business. The real estate was purchased by
the husband before the marriage, but the husband and wife
were both borrowers on loans encumbering the properties.
Through a combination of marital and premarital funds, the
loans were paid in full by the time of the dissolution action.
The properties appreciated significantly due to market forces
during the marriage. At issue is whether a marital interest was
acquired by paying down with marital funds the principal bal-
ance on the loans.
BACKGROUND
Larry J. Stava and Carine F. Stava met in 2000 and were
married in the State of Nebraska on May 25, 2002. Larry filed
a complaint for dissolution on December 11, 2020. No children
were born of the marriage.
Lot 14
A few years before Larry’s marriage to Carine, he purchased
property known as Tax Lot 14 (Lot 14) from his parents for
an unknown amount. Larry paid cash and paid in full. Lot 14
consisted of 32 acres of real property. There is no evidence of
the value of Lot 14 at the time of purchase.
To finance construction of a house on the property for him-
self and his children from his first marriage, Larry obtained a
bank loan in the amount of $195,000 on September 9, 1999,
secured by Lot 14. Payments were $1,424.05 per month, with
a balloon payment due on October 1, 2004, of $186,724.93.
A house and a shed were built on Lot 14 before Larry mar-
ried Carine.
The house on Lot 14 became Larry and Carine’s marital
home after they married in 2002. Russell Nelsen, a certified
appraiser who testified on behalf of Larry, opined that the
value of Lot 14, including the home, was $385,000 on the date
of the marriage. Nelsen elaborated that the $385,000 value in
2002 consisted of $121,600 for the acreage and $263,400 for
the house.
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STAVA V. STAVA
Cite as 318 Neb. 32
The principal balance on the loan was $190,306 when Larry
and Carine married, Larry’s having paid $4,694 toward the
principal. In other words, Larry had $194,694 in equity in Lot
14 when he married Carine.
Carine’s name was never added to the deed for Lot 14.
However, during their marriage, marital funds were used to pay
down a total of $84,620 of the principal on the debt secured
by Lot 14. Marital funds were also used to pay property taxes,
insurance, and interest on the debt encumbering Lot 14. Marital
funds were used to maintain the property and to finish and add
a new room to the basement. Carpet in the home was replaced
with hardwood flooring. A home equity line of credit on Lot 14
was regularly used for marital expenses.
Marital funds were used to make payments on the original
mortgage during Larry and Carine’s marriage until September
15, 2003, when the original note was paid off and a new loan
established for $189,000, again secured by Lot 14. At the
time of refinancing, the new principal balance was $187,560.
Both Larry and Carine were listed as borrowers on the new
loan. That loan for $189,000 was paid with marital earnings
until October 2009, when the loan was refinanced again. The
remaining principal balance at the time of the 2009 refinancing
was approximately $135,979, and the loan was refinanced with
that principal balance.
Marital funds were used to make payments on the refi-
nanced loan until 2014, at which time, the loan had a principal
balance of $107,126.88. On November 7, 2014, Larry used
the proceeds of the sale of premarital property to pay off the
remaining mortgage balance in the sum of $107,126.88.
Nelsen testified that Lot 14 had increased from a market
value of $385,000 in 2002 to a market value of $860,000 by
the time Larry filed his petition for dissolution. The $860,000
value in 2022 consisted of $512,000 for the land and $348,000
for the house. Nelsen opined that the increase in the value of
Lot 14 during the marriage was “mostly” due to market forces
stemming from the increase in values for acreage properties.
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Nebraska Supreme Court Advance Sheets
318 Nebraska Reports
STAVA V. STAVA
Cite as 318 Neb. 32
He explained that while the residence was well-maintained,
typical maintenance does not increase the value of property,
and he considered Larry and Carine’s maintenance of the prop-
erty to be typical.
Lot 15
Larry purchased property known as Tax Lot 15 (Lot 15) for
$169,000 in cash and in full on January 6, 1998. Lot 15 con-
sisted of approximately 34 acres of land. There is no evidence,
other than its purchase price, of its value at that time.
Before the marriage, Larry and Carine formed an equal
partnership, “The Farm at Butterflat Creek, L.L.C,” with the
intention that Carine would run a business offering horse train-
ing and riding lessons in a barn they would build on Lot 15. In
October 2001, Larry and Carine jointly took out as borrowers
a loan in the amount of $180,215.75 to build the barn. They
also built a shed on the property. The collateral for the original
loan was both Lot 14 and Lot 15. The construction was com-
pleted before Larry and Carine married. Carine’s name was
not added to the deed for Lot 15.
Nelsen opined that the value of Lot 15 in 2002, when Larry
and Carine married, was $386,700. Of that, the land value
was $128,500 and the value of the newly constructed barn
was $258,200.
Marital income ultimately paid off $25,631 of the principal
on the debt encumbering Lot 15. Marital funds were also used
to pay property taxes, insurance, interest, and fees. Marital
funds were used to maintain the property.
The original note required payments of $2,229.36 per
month with a balloon payment due April 1, 2007. These pay-
ments were made with marital funds until 2004. In 2004, the
balance of the loan was $156,754.74. Larry and Carine paid
off the balloon mortgage and refinanced through a loan from
Larry’s mother’s trust in the amount of $157,000. The loan
was made jointly to Larry and Carine and secured by a deed
of trust and a promissory note with Larry and Carine both as
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318 Nebraska Reports
STAVA V. STAVA
Cite as 318 Neb. 32
promisors. The loan required monthly payments in the amount
of $1,626.99. The collateral for the loan was Lot 15. Marital
funds were used to make the payments on the loan until
Larry’s mother’s death in 2005.
On August 4, 2005, Larry’s mother’s trust distributed funds
from Larry’s inheritance in the form of payment in full of the
remaining balance of the promissory note encumbering Lot
15 and of another note not at issue in this appeal. The bal-
ance of the note on Lot 15 at the time of the distribution was
$137,701.
Nelsen opined that the value of Lot 15 had increased from
$386,700 in 2002 to $794,000 by November 2022 when the
petition of dissolution was filed, with the value attributable to
the land being $540,000. This left the value of the barn and
other improvements at $254,000. He opined that the increase in
value was “mostly” based on the increase in its site value and
the per-square-foot value of the house. Any increase in value
not due to market forces was due to the increase in construc-
tion costs.
Order of Dissolution
The district court entered the decree of dissolution on
February 27, 2023. Neither party was awarded alimony. Most
of the property division was not subject to dispute and was
awarded according to stipulations between the parties.
Carine had asked the court to equitably divide Lot 14 and
Lot 15 as marital property. Alternatively, if the court decided
the properties were nonmarital, she asked that it award her an
amount representing half of that portion of the loan payments
made with marital funds, which went toward the principal.
Those amounts were stipulated. The court concluded the lots
were nonmarital.
The district court observed that separate property becomes
marital by commingling, if it is inextricably mixed with mari-
tal property or the separate property of the other spouse.
However, commingling does not occur if the separate property
remains segregated or is traceable into its product. The court
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318 Nebraska Reports
STAVA V. STAVA
Cite as 318 Neb. 32
also observed that the active appreciation rule sets forth a rel-
evant test to determine to what extent marital efforts caused
any part of an asset’s appreciation or income. The court found
that Larry had sustained his burden to prove that the increase
in value in the properties was due to passive market forces
and that no improvements were made to either property dur-
ing the marriage that increased their value. The court thereby
concluded that Lot 14 and Lot 15 were Larry’s premarital
property, apart from the $110,251 in marital contributions in
the form of a paydown on the mortgages’ principal. All rights,
titles, and interests to Lot 14 and Lot 15 were awarded to Larry
in the court’s order. It awarded Carine $45,000 as a cash equal-
ization payment, essentially refunding her half of the original
amounts of the portion of the mortgage payments that went
toward the principal of the loans on the properties.
Nebraska Court of Appeals
Carine timely appealed to the Court of Appeals. It affirmed
as modified the district court’s decision. 1
Analyzing the land separately from the improvements
thereon, the Court of Appeals affirmed the district court’s find-
ing that the land portion of Lot 14 was nonmarital property
apart from the amount of the marital payments toward the
principal. It reasoned that Larry owned the land “outright”
before the marriage 2; thus, its passive appreciation due to mar-
ket forces was a nonmarital asset as well. It did not discuss the
fact that the land was later encumbered by loans paid down
with marital funds. The Court of Appeals similarly found that
the district court did not abuse its discretion in determining
that the equity in the home, apart from an equalization pay-
ment representing the original amounts of marital payments
toward principal, was nonmarital property belonging to Larry.
The Court of Appeals calculated that the home had $83,159.12
in remaining equity, after subtracting Larry’s payments toward
1
See Stava v. Stava, 32 Neb. App. 840,6 N.W.3d 567
(2024).
2
Id. at 848, 6 N.W.3d at 575.
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STAVA V. STAVA
Cite as 318 Neb. 32
the principal with premarital funds and the parties’ payments
toward the principal with marital funds during the marriage.
The Court of Appeals did not state whether this remaining
equity was in part a marital asset, but instead analyzed whether
the appreciation of the house was readily identifiable and
traceable to the nonmarital portion of the asset and whether
the growth was not due to the active efforts of either party.
It described this analysis as determining if a party has sus-
tained the burden to prove that appreciation of a nonmarital
asset during the marriage is nonmarital. The Court of Appeals
expressed that “in our view, some portion of the $83,159.12
in appreciation could have remained characterized as marital,”
but it ultimately concluded that the district court did not abuse
its discretion in determining otherwise. 3
The Court of Appeals affirmed the district court’s decision
that the land portion of Lot 15 was nonmarital property, rea-
soning that Larry owned it “outright” before the marriage. 4 It
did not discuss the subsequent loans encumbering the property
with Larry and Carine jointly as borrowers and the paydown
of the principal on the debt with marital funds. The Court of
Appeals agreed with the district court that the appreciation of
the land was due to passive market forces; therefore, Larry
had sustained his burden to prove the appreciation was a non-
marital asset.
But the Court of Appeals reversed the district court’s deci-
sion that the barn and shed constructed on the land was non-
marital property. Because the conception, construction, and
financing were a joint effort, the Court of Appeals held that
the improvements were marital property. It noted that the
improvements did not appreciate during the marriage and had
equity of $254,000. The Court of Appeals found that, after
setting off $137,701 attributable to Larry’s inheritance distri-
butions that reduced the promissory note attached to Lot 15,
3
Id. at 852, 6 N.W.3d at 577.
4
Id. at 848, 6 N.W.3d at 575.
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Nebraska Supreme Court Advance Sheets
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STAVA V. STAVA
Cite as 318 Neb. 32
there was $116,299 in marital equity in the barn and other
improvements built on the lot. It held that Carine was entitled
to half of this equity, minus the $12,815.50 credit already
awarded to her for half of the principal payments made on the
debt for Lot 15. The Court of Appeals accordingly modified
the dissolution decree’s award to Carine to be $90,334, rather
than $45,000.
We granted Carine’s petition for further review. Larry did
not petition for further review and has not assigned as error the
Court of Appeals’ modification of the equalization judgment.
ASSIGNMENTS OF ERROR
On further review, Carine assigns that the Court of Appeals
erred in (1) upholding the district court’s classification of Lot
14 and Lot 15 as Larry’s premarital properties, despite the
fact that they were encumbered by loans secured by both par-
ties and paid down with marital funds over the course of the
20-year marriage; (2) upholding the district court’s application
of the active appreciation rule to Lot 14 and Lot 15, because
the lots were marital property; and, alternatively, (3) finding
that Larry had met his burden to overcome, through the passive
appreciation exception, the presumption that appreciation dur-
ing the marriage is marital property.
STANDARD OF REVIEW
[1] In a marital dissolution action, an appellate court reviews
the case de novo on the record to determine whether there has
been an abuse of discretion by the trial judge in his or her
determinations regarding custody, child support, division of
property, alimony, and attorney fees. 5
[2] In a review de novo on the record, an appellate court
is required to make independent factual determinations based
upon the record, and the court reaches its own independent
conclusions with respect to the matters at issue. 6
5
Seemann v. Seemann, 316 Neb. 671,6 N.W.3d 502
(2024).
6
Id.
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Nebraska Supreme Court Advance Sheets
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STAVA V. STAVA
Cite as 318 Neb. 32
[3] When evidence is in conflict, the appellate court consid-
ers and may give weight to the fact that the trial court heard
and observed the witnesses and accepted one version of the
facts rather than another. 7
[4] When reviewing questions of law, an appellate court has
an obligation to resolve the questions independently of the con-
clusion reached by the trial court. 8
ANALYSIS
[5] Neb. Rev. Stat. § 42-365(Reissue 2016) provides for the “division of property as may be reasonable, having regard for the circumstances of the parties, duration of the marriage, [and] a history of the contributions to the marriage by each party,” and, further, § 42-365 provides that “[t]he purpose of a property division is to distribute the marital assets equitably between the parties.” There is no mathematical formula by which property awards can be precisely determined, but, gen- erally, a spouse should be awarded one-third to one-half of the marital estate, the polestar being fairness and reasonableness as determined by the facts of each case. 9 Equitable property division under § 42-365 is a three-step process. 10 The first step is to classify the parties’ property as marital or nonmarital. 11 The second step is to value the marital assets and determine the parties’ marital liabilities. 12 The third step is to calculate and divide the net marital estate between the parties in accordance with the principles contained in § 42-365. 13 7 Id. 8 Mathews v. Mathews,267 Neb. 604
,676 N.W.2d 42
(2004). 9 See Seemann v.Seemann, supra note 5
. 10 Schwensow v. Bartnicki,32 Neb. App. 798
,6 N.W.3d 549
(2024). 11Id.
12Id.
13Id.
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STAVA V. STAVA
Cite as 318 Neb. 32[6,7] This appeal involves the first step, classification of the property. Any given property can constitute a mixture of mari- tal and nonmarital interests; a portion of an asset can be marital property while another portion can be separate property. 14 The burden of proof rests with the party claiming that the property is nonmarital. 15 [8] The extent to which the property is marital versus non- marital presents a mixed issue of law and fact. 16 The manner and method of acquisition involve questions of fact, but the classification of the property under those facts is a legal ques- tion and not a matter of the court’s discretion. 17 The second step, valuation, involves questions of fact, and the third step, dividing the marital estate in accordance with the principles of § 42-365, is a matter of discretion. 18 [9,10] All property accumulated and acquired by either spouse during the marriage is, as a general rule, part of the marital estate. 19 The manner in which property is titled or transferred by the parties during the marriage does not restrict the trial court’s ability to determine how the property should be divided in an action for dissolution of marriage. 20 Appreciation, be it active or passive, in the marital interest is always marital; 21 it is simply part of the marital property. 14 Stephens v. Stephens,297 Neb. 188
,899 N.W.2d 582
(2017). 15 See, e.g., Seemann v.Seemann, supra note 5
. 16 See 1 Brett R. Turner, Equitable Distribution of Property § 5:1 (4th ed. 2024) (and cases cited therein). 17 See id. 18 See, e.g., Longo v. Longo,266 Neb. 171
,663 N.W.2d 604
(2003); Taylor v. Taylor,222 Neb. 721
,386 N.W.2d 851
(1986). 19 See Coufal v. Coufal,291 Neb. 378
,866 N.W.2d 74
(2015). 20 Gangwish v. Gangwish,267 Neb. 901
,678 N.W.2d 503
(2004).
21
Brett R. Turner, A Short Overview of Nationwide Case Law on Classification
of the Marital Home, 14 No. 3 Divorce Litig. 52 (Mar. 2002).
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STAVA V. STAVA
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[11] In contrast, property that a party brings into the mar-
riage is usually excluded from the marital estate. 22 We have
said that the equity in property at the time of marriage is a
nonmarital asset which, if established, should be set aside as
separate property. 23 This includes its passive appreciation.
Separate property can become marital property under either
“transmutation” or “active appreciation.” 24 These two catego-
ries are mutually exclusive. 25 Transmutation converts an asset
entirely from separate to marital and can occur through com-
mingling if the separate property is inextricably mixed with
marital property or with the separate property of the other
spouse. 26 Active appreciation converts to marital property only
the increase in a nonmarital asset’s value due to a contribution
of marital funds or efforts. 27 This is opposed to passive appre-
ciation, which is appreciation caused by separate contributions
and nonmarital forces. 28
[12-14] “Acquisition” of property in the first instance can
be an ongoing process. It occurs only as it is paid for, 29 as
the real value of property is the equity and not the mere legal
title. 30 Under the majority “source of funds” rule, acquisition
of encumbered property only occurs when and to the extent
it becomes unencumbered by paying off the principal of an
22
See Heald v. Heald, 259 Neb. 604,611 N.W.2d 598
(2000). 23 Parde v. Parde,313 Neb. 779, 794
,986 N.W.2d 504
, 515 (2023). 24 Annot.,39 A.L.R.6th 205
, 218 (2008). 25 Seeid.
26 See, Seemann v.Seemann, supra note 5
; 39 A.L.R.6th, supra note 24. 27 See Parde v.Parde, supra note 23
; 39 A.L.R.6th, supra note 24. 28 See Parde v.Parde, supra note 23
. 29 See, Aubert v. Wilson,483 P.3d 179
(Ala. 2021); In re Marriage of Moore,28 Cal. 3d 366
,618 P.2d 208
,168 Cal. Rptr. 662
(1980); Kaaa v. Kaaa,58 So. 3d 867
(Fla. 2010); Dorbin v. Dorbin,105 N.M. 263
,731 P.2d 959
(N.M. App. 1986); Brackney v. Brackney,199 N.C. App. 375
,682 S.E.2d 401
(2009); Jordan v. Postell,434 S.C. 510
,864 S.E.2d 558
(S.C. App. 2021); Moran v. Moran,29 Va. App. 408
,512 S.E.2d 834
(1999).
30
Turner, supra note 21.
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Cite as 318 Neb. 32encumbering loan. 31 Said property has not been acquired to the extent the principal balance of that debt remains unpaid. 32 Instead, it is acquired when, and to the extent, the parties reduce the principal balance. 33 Thus, the use of marital funds to pay down the mortgage on what was initially separate prop- erty acquires the property during the marriage to the extent the principal is paid, creating a proportionate marital interest in that property. 34 This is “regardless of how many different mortgages existed during the marriage.” 35 Furthermore, it is the overwhelming majority rule that when acquisition occurs via payments on the principal of encumber- ing debt, the marital estate receives not just a refund of the monetary contribution toward the principal of the loan, but also a fair return on its investment, which includes passive appreciation. 36 “The common sense result, and the consensus rule nationwide,” is to divide the passive appreciation propor- tionately between the marital and separate interests if marital funds were used to pay down the principal of a mortgage for property that appreciates during the marriage due to passive market forces. 37 “[A]ll of the appreciation caused by market forces should not go to the separate estate merely because inception of title happened to occur before the marriage,” as it is unfair to allow an owner spouse to receive the full benefit 31 Seeid.
32 1 Turner, supra note 16, § 5:26. 33 Id. 34 See Kessler v. Kessler,411 P.3d 616
(Alaska 2018). See, also, Aubert v.Wilson, supra note 29
. 35 Brett R. Turner, Unlikely Partners: The Marital Home and the Concept of Separate Property,20 J. Am. Acad. Matrim. Law. 69
, 115 (2006). 36 See 3 Brett R. Turner, Equitable Distribution of Property § 10:15.5 (4th ed. 2024). See, also, e.g., Travis v. Travis,59 S.W.3d 904
(Ky. 2001); Selby v. Selby,149 S.W.3d 472
(Mo. App. 2004); Willis v. Willis,86 N.C. App. 546
,358 S.E.2d 571
(1987).
37
See 3 Turner, supra note 36, § 10:15.5 at 363.
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of the passive appreciation when marital funds were used to
pay the mortgage and acquire equity in the property. 38
[15] In sum, because the portion of the property’s equity
created during the marriage with marital funds constitutes
marital property, the appreciation on that equity, whether it be
passive or active, is also marital property. 39 “[A]ppreciation
in marital equity is not appreciation in nonmarital property
to begin with.” 40 The passive appreciation may have a dual
character to the extent that the equity in the property also has
a dual character; the passive appreciation in the separate inter-
est remains separate property while the passive appreciation in
the marital interest remains marital property. 41
To calculate the respective values of a hybrid marital/non-
marital property, a percentage value of the respective marital
and nonmarital parts must be determined:
Since the marital and separate interests attach to the
entirety of the asset and not to specific parts, each interest
appreciates or depreciates passively in the same percent-
age as the entire asset.
The marital contribution is therefore equal to the mari-
tal contribution, plus the passive appreciation in the mari-
tal contributions. The passive appreciation in the marital
contributions is the amount of the marital contribution,
multiplied by the percentage of appreciation in the entire
asset. . . .
Likewise, the separate interest is equal to the sepa-
rate contributions, plus the passive appreciation in the
separate contributions. The passive appreciation in the
separate contributions is the amount of the separate
38
See id. at 364. See, also, e.g., Kaaa v. Kaaa, supra note 29; Jordan v.
Postell, supra note 29.
39
See id.
40
3 Turner, supra note 36, § 10:11.10 at 342.
41
See 1 Turner, supra note 16, § 5:24.
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contribution, multiplied by the percentage appreciation in
the entire asset. 42
The percentage appreciation in the entire asset is equal to the
value of the asset at divorce, minus the total marital and sepa-
rate contributions, divided by the total marital and separate
contributions. 43 The simplest formula for this is MI=V(MC/TC ). 44
“MI” is the marital interest, “MC” is marital contributions, and
“TC” is the total marital and separate contributions. 45 “V” is
the value at the time of divorce. 46
Thus, for example, a property was purchased for $100,000
and is worth $200,000 at the time of divorce. Spouse A paid
$50,000 toward the equity with separate contributions. Another
$50,000 toward the equity was paid during the marriage with
marital funds. We would use the formula above to find the
marital interest in the property as follows:
Value at the time of divorce (V) = $200,000
Marital Contribution (MC) = $50,000
Total Contribution (TC) = $100,000
Solving for the Marital Interest (MI)
MI = V(MC/TC)
MI = 200,000(50,000/100,000)
MI = 200,000(1/2)
MI = $100,000
42
Id. at 608-09.
43
1 Turner, supra note 16, § 5:24.
44
See id.
45
See id.
46
See id. (mathematically equivalent is the formula:
P is the percentage of appreciation in the entire asset or P = (V-TC)/TC
MI = MC(1+P);
MI = MC(1+(V-TC/TC ));
MI = MC(1+V/TC-TC/TC );
MI = MC(1+V/TC-1);
MI = MC(V/TC );
MI = V(MC/TC )).
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A parallel formula computes the value of the separate interest:
SI=V(SC/TC ), with “SI” being separate interest and “SC” being
separate contributions. 47 Using our example data from above,
we would use this formula to determine Spouse A’s appreciated
value in the property as follows:
Value at the time of divorce (V) = $200,000
Separate Contribution by Spouse A (SC) = $50,000
Total Contribution (TC) = $100,000
Solving for Separate Interest (SI)
SI = V(SC/TC)
SI = 200,000(50,000/100,000)
SI = 200,000(1/2)
SI = $100,000
In this example, using the results of the two formulas, Spouse
A’s separate interest in the appreciated value of the property
is $100,000 and the marital interest is also $100,000 in the
appreciated value of the property.
While we have not used the term “source of funds” rule,
the principles of the majority rule align with our case law. In
Harris v. Harris, 48 for example, we recognized that marital
payments to a mortgage encumbering a premarital property
created marital property that included its passive appreciated
value. The marital home had been purchased by the husband
before his marriage and had a premarital value of $54,500.
The value of the residence had appreciated due to market
forces to a value of $82,000 by the time of dissolution. It
was unknown what the husband’s equity in the home was
before the marriage. The parties encumbered the residence
with mortgages during the marriage, and it was encumbered in
the amount of $60,600 at the time of trial. The district court
awarded the house to the husband, subject to the mortgages,
for which the husband was ordered to be solely responsible. It
47
Id.
48
Harris v. Harris, 261 Neb. 75,621 N.W.2d 491
(2001). See, also, Heald v.
Heald, supra note 22.
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did not, however, set it aside as the husband’s separate, non-
marital property such that he was entitled to the entirety of the
equity in its value at the time of dissolution, and the husband
appealed. We affirmed the finding that the house was marital.
We explained that the husband was not entitled, as his separate
property, to the entirety of the $21,400 in equity of the house
at the time of dissolution, because that equity grew, in part,
due to mortgage payments made from marital funds. While
we agreed that, in theory, any equity in the house before the
marriage should have been set aside as the husband’s separate
property, we observed that the husband had failed to establish
what that amount was. As such, the district court did not err
in including the entirety of the equity in the residence in the
marital estate.
Also apposite to the case at bar is Eis v. Eis, 49 wherein we
held that the dissolution court did not err in finding that the
entirety of an acreage containing the marital home was marital
because of marital payments on the mortgage—even though
the husband purchased the property before the marriage. The
property was subject to two mortgages before the marriage,
and these were consolidated during the marriage in a loan
under which both the husband and wife were obligated. The
consolidated loan was paid with marital funds during the mar-
riage. We observed that the husband and wife regularly bor-
rowed against the property for marital expenses and satisfied
those liens with marital funds. While the husband alleged he
had contributed $34,000 to the property, worth $575,000 at the
time of dissolution, we held the lower court did not err in find-
ing it entirely marital due to commingling, when the husband
presented no evidence regarding the value of the tract separate
from its improvements or that the appreciation in value was
not due to the wife’s investment of $60,000 in home renova-
tion and garage construction.
49
Eis v. Eis, 310 Neb. 243,965 N.W.2d 19
(2021).
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We hereby expressly adopt the source of funds rule. We rec-
ognize the district court’s discretion in applying the source of
funds rule and recognize that the mathematical formulas above
may not be the only method of applying the source of funds
rule in every situation.
The district court and the Court of Appeals correctly found
as a factual matter that the appreciation of Lot 14 and Lot 15
was passive. But the real question is whether some portion of
the lots became marital via principal paydown with marital
funds. To the extent the properties were acquired with mari-
tal funds through the acquisition of equity therein, the active
appreciation rule is not applicable and passive appreciation of
that portion of the properties belongs to the marital estate.
Because of some lack of clarity in our case law, the district
court did not consider whether the marital estate’s acquisition
of equity in the properties acquired a proportionate marital
interest that includes passive appreciation—and it did not deter-
mine the equitable division of said marital interest. Similarly,
with respect to Lot 14 and the land portion of Lot 15, the Court
of Appeals utilized an active appreciation analysis and did not
consider the source of funds rule.
We reverse the Court of Appeals’ decision affirming the
district court’s judgment with respect to Lot 14 and the land
portion of Lot 15. We remand the cause to the Court of Appeals
with directions to reverse the district court’s judgment and
remand the cause to the district court for a new hearing on the
question of the equitable division of Lot 14 and the land por-
tion of Lot 15. The Court of Appeals should direct the district
court to consider whether it is appropriate in this matter to
implement the source of funds rule adopted herein to ensure an
equitable distribution of the marital property.
Neither Larry nor Carine challenge on further review that
part of the Court of Appeals’ decision reversing the district
court’s judgment as to the barn and other improvements on
Lot 15, holding that their present equity value of $254,000
was joint marital property due to the joint effort under which
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they were constructed and operated. We affirm that part of the
Court of Appeals’ decision.
CONCLUSION
We affirm the Court of Appeals decision as to the improve-
ments on Lot 15, but reverse the remainder of its decision
and remand the cause with directions to reverse the district
court’s judgment and remand the cause to the district court
for a new hearing on the equitable division of Lot 14 and the
land portion of Lot 15, after determining whether implemen-
tation of the source of funds rule is necessary to equitably
separate the marital property in this matter.
Affirmed in part, and in part reversed
and remanded with directions.
Cassel, J., concurring in part, and in part dissenting.
Albert Einstein reputedly said: Not everything that can be
counted counts, and not everything that counts can be counted.
Confronted by a deluge of mathematics in the majority opin-
ion, I fear that the bar and trial bench may read it to require
precision inconsistent with the settled polestar principle apply-
ing the statutory mandate and with the oft-repeated standard
of review.
The majority opinion correctly recites the controlling
statute, 1 the settled polestar principle of law, 2 and the standard
of review. 3 I likewise have no quarrel with the “source of
funds” rule—the concept that the use of marital funds to pay
debt incurred upon what was initially separate property can
create a proportionate marital interest in that property. Finally,
the majority seems to “recognize the district court’s discretion”
1
See Neb. Rev. Stat. § 42-365(Reissue 2016) (requiring equitable distri bution of property). 2 See Seemann v. Seemann,316 Neb. 671
6 N.W.3d 502
(2024) (no mathematical formula, polestar being fairness and reasonableness as determined by facts of each case). 3 Seeid.
(de novo on record for abuse of discretion).
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Cite as 318 Neb. 32in applying the rule and to “recognize that the [mathematics] may not be the only method” of doing so. But other language in the majority opinion can be read to compel a dogmatic approach. For example, the majority states that “[t]o calculate the respective values of a hybrid marital/ nonmarital property, a percentage value of the respective mari- tal and nonmarital parts must be determined.” (Emphasis sup- plied.) The string of mathematics then follows. The tension between this rigid, formulaic approach and the purported rec- ognition of trial court discretion places both bench and bar in a quandary. I would commit the application of the “source of funds” rule to the sound discretion of the trial court. To the extent that the majority does otherwise, I respectfully dissent.