The Court of Appeals for the Fourth District of Florida recently affirmed the decision of a trial court that held a husband could not use the S&P 500 as the benchmark to assist in the determination of whether the appreciation of his stock portfolio was marital (and thus subject to equitable distribution) or non-marital. Mathers v. Brown, 21 So. 2d 834 (Fla. 4th DCA 2009).

Generally speaking, the appreciation of a stock portfolio that existed before marriage is “non-marital” and not subject to equitable distribution upon divorce in Florida if the appreciation is “passive” and not attributable to “marital effort.” However, a spouse contending that the appreciation of their stock is non-marital has the burden of proving that the appreciation was due to passive market forces and not marital effort.

Proving that appreciation was due to market forces can be a serious issue when a spouse is a day-trader or hedge fund manager, or otherwise brought a substantial portfolio of assets into their marriage. In the past, courts in these types of cases would typically use the S&P Stock Index as the “benchmark” for passive appreciation; thus, all appreciation over and above the appreciation in the S&P Stock Index would constitute “active appreciation” subject to equitable distribution.

In Mathers, however, the trial court declined to allow a party to use the S&P Stock Index as the benchmark for differentiating between active and passive appreciation. In Mathers, the husband’s stock portfolio appreciated by $2.8 million dollars during the parties four year marriage. At trial, the husband argued that the appreciation of his portfolio over the parties’ marriage should be offset by an amount equal to the appreciation of the S&P Stock Index over the same period. The trial court rejected Husband’s argument and found the entire amount of the appreciation to be a marital asset subject to equitable distribution, finding that:

“[Husband] bought only a few S&P 500 stocks… instead, he bought and sold many foreign stocks and foreign index funds… The Husband made over 700 separate trades during the marital time frame. The S&P 500 Stock Index assumes a buy-hold strategy where stocks are purchased, not sold, and are held for a long period of time. As a result, the Court finds that any index, whether it be the S&P 500 Stock Index, or any other one available for analysis during the term of the parties’ marriage, would be entirely speculative… In light of the foregoing, the Court will not apportion and offset the growth from the Husband’s stock account by any index factor and, as a result, all of said [appreciation] is a marital asset.”

On appeal, the Mathers court affirmed the trial court, finding that Husband failed to meet his burden of establishing any portion of the appreciation in his portfolio was due to passive market conditions. The Mathers court held that:

For more information, call 561.844.1200 and speak to an attorney with the Law Offices of Matthew S. Nugent about how Florida’s equitable distribution laws apply to your situation.