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Active and passive appreciation of marital assets

On Behalf of | Nov 17, 2021 | Family Law

Illinois is an equitable distribution state, which means that marital property may not be divided equally in a divorce. Instead, a judge will make a determination about what is fair, given the unique circumstances of each couple. This can make the already complicated issue of appreciation even more complicated.

Appreciation and marital property

One of the fundamental issues in property division negotiations is determining what the marital property is. Marital property is any financial or tangible assets that one or both spouses acquired during the course of their marriage. If an asset was acquired by one spouse before the marriage, it may not be considered marital property. Property that is mentioned in a prenuptial agreement may also be excluded.

Appreciation in value can complicate the distinction between separate property and marital property. For example, a house that one spouse purchased prior to the marriage may be that spouse’s separate property. However, if the house appreciated in value during the marriage, this added value is usually considered marital property.

Active vs. passive appreciation

The way that an asset appreciated in value is another important distinction that must be made in divorce proceedings. Active appreciation means that an asset only became more valuable because of the work that one or both spouses put into it. Passive appreciation means that an asset grew in value without any work by either spouse.

Why it matters

When a judge is making decisions about equitable division of marital property, they will be interested in how assets appreciated in value. If active appreciation during the marriage caused an asset to grow in value, for example, then the added value is more likely to be considered marital property. A judge may also look into whether third parties were involved in the appreciation of a marital asset.