Bair v. Bair, Active v. Passive Appreciation
In the recent case of Bair v. Bair, 2017, the divorcing couple argued over the valuation of the marital portion of Mr. Bair’s separate minority interest in a boat dealership. During the applicable time frame, real property owned by the company had its value significantly drop. When defining marital assets in the State of Florida, the law “includes the appreciation in value of nonmarital assets resulting from the efforts of either party during the marriage.”
In Bair v. Bair, the trial court had to decide the total amount of appreciation in the company’s worth for the duration of the marriage, and the indicate what percentage of appreciation was a direct result of Mr. Bair’s marital labor. The trial court accepted the valuation brought forth by Mrs. Bair’s team, which was about $1 million higher than the valuation brought forth by Mr. Bair’s side. The trial court also accepted the calculation of marital labor provided by Mrs. Bair’s legal team. When determining the valuation for the company, Mrs. Bair’s expert did not include real estate value and stated that changes in the market were passive in nature, due to market forces, and not a result of Mr. Bair’s management efforts.
During the appeals process the court agreed with Mr. Bair, citing that it was a legal error to exclude the real property value in the determination of the company’s worth. The appeals court stated that Florida law requires that the valuation of a company include all assets and liabilities, “the sum of all parts, not a select few, is what encompasses a business’s ‘value.” Furthermore, the appeals court found it was unsuitable to exclude the appreciation or depreciation of certain company assets as passive when Mr. Bair’s marital labor led to a shift in the company’s value. Regardless of whether some changes in the company’s worth were passive in nature, the overall appreciation in this case was a direct consequence of Mr. Bair’s marital labor. The appeals court stated, “the portion of the overall appreciation resulting from the marital labor was subject to equitable distribution.” The court also noted that active versus passive appreciation may come into play if Mr. Bair directly owned the real estate, not the company.
The focus of Bair v. Bair was determining the company’s valuation. Ultimately, the court found that Mr. Bair’s marital labor unquestionably increased the company’s worth, stating “because of that marital labor, the law relating to purely passive increases in the value of nonmarital assets simply does not apply.”