Stock Appreciation: Is it a Marital Asset?

Increasingly, the proper treatment of the appreciation of assets is coming up in divorce cases. Although the issue typically arises in the context of a spouse who owns a business, it’s not limited to such circumstances. For example, the Florida District Court of Appeals for the Fourth District recently considered the appreciation of shares in a company where the spouse merely worked.

Wife Seeks Share

The husband in Witts-Bahls v. Bahls worked at a large privately held international company for 12 years prior to the marriage. He was demoted at least twice during the marriage and eventually fired. At his highest position, he had several levels of management above him.

Before the marriage, the husband purchased a large number of company shares using a bank loan. Upon termination, his stock was sold for substantially more than the loan’s outstanding balance. The trial court found that the stocks appreciation in value wasn’t subject to marital distribution. The wife appealed.

Court Clarifies Treatment

The wife urged the appellate court to adopt a rule that all appreciation of stock of a company for which a spouse works is a marital asset. The court rejected this approach, explaining that under state law the enhanced value of such stock could be considered a marital asset subject to equitable distribution. But it could also be considered a nonmarital asset if marital effort or assets aren’t used in enhancing its value.

The question, therefore, was whether the husband had exerted the effort required to move the appreciation in value from the nonmarital to the marital category. The court cited three previous cases. In each case, the appreciation of stock held by a husband who was an employee was found to be a marital asset. However, the critical point in the three cases was that the business was owned or run by the husband’s family or the husband was in a position of significant authority in the company.

Although the husband in the present case had some supervisory responsibility, the court found that he could reasonably be called a middle manager. Because the wife failed to establish that he’d held a significant management role with his former employer, appreciation wasn’t due to his active effort and wasn’t a marital asset.

Hot Issue

The divisibility of stock appreciation is likely to continue to be a hot issue in divorce contexts. In Florida, at least, it appears clear that its status as a marital asset will depend on the nature of the company and the spouse’s position within it.