Passive Appreciation Definition: In the context of this discussion, passive appreciation is the term being used to describe any increase in value that occurs in a defined contribution plan from the date of the marriage until the date the marriage ended that is a result of only investment experience and market fluctuations.

General Discussion: Passive appreciation describes the growth experienced on the account balance of a defined contribution plan as of the date of the parties marriage until the date the marriage ended. For example, Jane Doe had a 401(k) Plan with her employer that had an account balance of $10,000 on the date of her marriage. On the date her marriage ended, the account value had grown to $15,000. Over the course of the marriage, no additional sums were contributed to this account. Therefore, the passive appreciation experienced in her 401(k) Plan totaled $5,000. This appreciation is termed as "passive" due to the fact that the growth in the account is not a direct result of the efforts of the employee, but rather the effect of market fluctuations and positive investment experience.

Classification: Some states have determined that passive appreciation is marital property subject to distribution. Other states have decided that this passive appreciation is not marital property, but rather the separate property of the employee.

State Property Classification Table

Valuation: Determining the actual amount of passive appreciation experienced in an account can be an difficult process. The actual investment experience which occurs in the account over a period of time must be traced using all of the relevant statements and/or other information supplied by the plan.

Distribution: If the passive appreciation is determined to be marital property subject to distribution, such amounts can be distributed using either Immediate Offset or Deferred Distribution.

State Case Law

The following is a summary of case laws we have come across in our research of this topic. If nothing is listed under a particular state it is because we have not found any pertinent cases relative to this topic. If you know of a case that relates to this topic, and do not find it listed here, please e-mail us the citation so that we can include it in this section.
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ALABAMA

ALASKA

ARIZONA

Cooper, 808 P. 2d 1234 (1990)
Nonemployee spouse was entitled to have the passive appreciation included in the marital portion of the pension fund treated as marital property.

ARKANSAS

Brown, 828 S.W. 2d 601 (1992)
Nonemployee spouse was entitled to have the passive appreciation included in the marital portion of the pension fund treated as marital property.

CALIFORNIA

COLORADO

In re Hunt, 909 P.2d 525 (Colo. 1995)
Post-divorce pension enhancements are not necessarily separate property. Although post-divorce earnings are undisputably separate property, pension enhancements are subject to application of the "time rule" formula and may be apportioned.

CONNECTICUT

DELAWARE

DISTRICT OF COLUMBIA

FLORIDA

GEORGIA

HAWAII

Myers, 764 P. 2d 1237 (1988)
Appreciation unrelated to the activities of either spouse, i.e. passive appreciation, is a factor to be taken into consideration in dividing marital assets. However, it may or may not be just and equitable to award part of the appreciation to the non-owning spouse. Such award depends on the circumstances of the case.

IDAHO

ILLINOIS

Bentley v. Bentley, 84 Ill. 2d 97, 417 N.E.2d 1309 (1981)
Passive increases, those increases caused by inflation, appreciation or other market forces not attributable to either party’s efforts, which relate to the sole and separate property are themselves sole and separate property, unless the nonemployee spouse can prove that he or she contributed to the increase.

INDIANA

IOWA

KANSAS

KENTUCKY

LOUISIANA

MAINE

MARYLAND

MASSACHUSETTS

MICHIGAN

MINNESOTA

Minn. Stat. Sec. 518.54, subd. 5 (1998)
Marital property includes all property acquired during the marriage. Nonmarital property includes all property acquired before marriage and the increase in value of that property. Minn. Stat. Sec. 518.54,subds. 5(b), (c) (1998). Increases in the value of nonmarital property due to the entrepreneurial decision-making efforts of one or both spouses during the marriage are considered marital property. But increases in value of nonmarital property remain nonmarital if shown to be attributable solely to market forces or conditions, such as simple appreciation in value of an asset. Upon dissolution, a spouse is entitled to receive the original nonmarital asset and any passive appreciation in value.

Petschel, 406 N.W. 2d 604 (1987)
Increases are separate property only if compensation for specific postmarital efforts.

MISSISSIPPI

MISSOURI

In re Marriage of Herr, 705 S.W.2d 619 (Mo. Ct. App. 1986)
Passive increases, those increases caused by inflation, appreciation or other market forces not attributable to either party’s efforts, which relate to the sole and separate property are themselves sole and separate property, unless the nonemployee spouse can prove that he or she contributed to the increase.

Hull v. Hull, 591 S.W.2d 376, 1979
Passive appreciation is that increase in value produced by normal inflation or normal market forces, and it generally constitutes separate property.

MONTANA

NEBRASKA

Van Newkirk v. Van Newkirk, 325 N.W.2d 832 (1982)
Passive increases, those increases caused by inflation, appreciation or other market forces not attributable to either party’s efforts, which relate to the sole and separate property are themselves sole and separate property, unless the nonemployee spouse can prove that he or she contributed to the increase.

NEVADA

Gemma, 778 P. 2d 429 (1989)
Passive appreciation of a pension is properly divisible as marital property.

NEW HAMPSHIRE

NEW JERSEY

Moore, 553 A. 2d 20 (1989)
Nonemployee spouse entitled to have the passive appreciation in the marital portion of the pension fund treated as marital property.

NEW MEXICO

Lewis, 739P. 2d 974 (1987)
Passive appreciation of a pension is properly divisible as marital property.

NEW YORK

Glass, 177 A.D. 2D 807 (1991)
Nonemployee spouse is entitled to have the passive appreciation in the marital portion of the pension fund treated as marital property.

Goldman, 670 N.Y.S. 2D 521 (1998)
Passive appreciation of defined contribution plan which predated the marriage is not marital.

NORTH CAROLINA

Allen v. Allen, 455 S.E.2d 440 (1995)
Court approved judgment awarding wife postseparation gains or losses on her portion of 401(k) plan.

O’Brien v. O’Brien, 508 S.E.2d 300 (1998)
There is a distinction between active and passive appreciation of separate property, in that active appreciation refers to financial or managerial contributions of one of the spouses to the separate property during the marriage, while passive appreciation refers to enhancement of the value of separate property due solely to inflation, changing economic conditions or other such circumstances beyond the control of either spouse.

If either or both of the spouses perform substantial services during the marriage which result in an increase in the value of an investment account, that increase is to be characterized as an active increase and classified as a marital asset.

Smith v. Smith, 444 S.E.2d 420 (1994)
The trial court must make a written finding of the passive or active character of post-separation appreciation and in that context the trial court is not required to quantify the post-separation increase on each marital asset as active or passive but must make ultimate findings of fact regarding the character of the total post-separation appreciation.

McLeod v. McLeod, 327 S.E.2d 910, cert. denied, 333 S.E.2d 488 (1985)
It was not intended in the court’s analysis to infer that appreciation in passive investments such as bank accounts or securities, not actively increased by the skill and labor of the spouse who inherited or brought them to the marriage, but which the parties were able to preserve intact only because they spent marital funds, invariably remains separate property

NORTH DAKOTA

OHIO

Layne, 615 N.E. 2d 332 (1992)
Nonemployee spouse entitled to have the passive appreciation in the marital portion of the pension fund treated as marital property.

OKLAHOMA

Mothershed v. Mothershed, 701 P.2d 405 (Okla. 1985)
Passive increases, those increases caused by inflation, appreciation or other market forces not attributable to either party’s efforts, which relate to the sole and separate property are themselves sole and separate property, unless the nonemployee spouse can prove that he or she contributed to the increase.

OREGON

PENNSYLVANIA

Berrington, 633 A. 2d 589 (1993)
Passive appreciation of a pension is properly divisible as marital property.

RHODE ISLAND

SOUTH CAROLINA

SOUTH DAKOTA

TENNESSEE

TEXAS

UTAH

VERMONT

VIRGINIA

Moran, 512 S.E. 2d 834 (1999)
Passive increase on premarital value is not marital property.

DeHaven v. DeHaven, No. 0997-96-4 (Ct. of Appeals Apr. 8, 1997)
If spouse proves that passive factors account for a portion of the increase in the value of his stock, such increase cannot be properly classified as marital property. Similarly, where third parties contribute to the increase in value of separate property, the marital portion is to be reduced proportionately. The increase classifiable as marital should reflect only that attributable to the parties’ personal efforts and not those of others or passive factors.

Banagan v. Banagan, 17 Va. App. 321, 437 S.E.2d 229 (1993)
The trial court erred by arbitrarily basing deferred distribution on pension benefits at age 55; method improperly deprived marital estate of passive appreciation in marital interest after that point.

WASHINGTON

Elam v. Elam, 97 Wash. 2d 811, 650 P.2d 213 (1982)
Passive increases, those increases caused by inflation, appreciation or other market forces not attributable to either party’s efforts, which relate to the sole and separate property are themselves sole and separate property, unless the nonemployee spouse can prove that he or she contributed to the increase.

WEST VIRGINIA

WISCONSIN

Plachta v. Plachta, 118 Wis. 2d 329, 348 N.W.2d 193 (Ct. App. 1984)
Passive increases, those increases caused by inflation, appreciation or other market forces not attributable to either party’s efforts, which relate to the sole and separate property are themselves sole and separate property, unless the nonemployee spouse can prove that he or she contributed to the increase.

WYOMING

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