Land Values and Equitable Distribution

Brackney v. Brackney, 682 S.E.2d 401 (N.C. App. 2009).

• Facts: Plaintiff and Defendant had a child with severe neurological needs. To accommodate the child’s needs, they chose to build a single-level home that was accessible. The child unfortunately passed. The parties then separated a year later. The home’s construction was not yet finished and the parties had not yet closed on the home. Per the contract with the home builder, if the home did not close on a specific date, the down payment for the home would be forfeit. The Plaintiff was allocated the home in an interim distribution, and thereafter closed on the home. In the preceeding years, the property value on the home skyrocketed by $181,000. At trial, Plaintiff made an argument that this increase was his own separate property. The trial court did not agree, classified it as divisible property, and Plaintiff appealed.

 

• Issue: Was the trial court in error when it found that the increase in property value was divisible?

 

• Holding:

 

• Rationale: Equitable distribution has three broad categories for classifying property: separate, marital, and divisible. Divisible property is defined by statute as the passive appreciation and diminution in value of marital/divisible property occurring after separation but before distribution. If the appreciation in the value of the home was active, that Plaintiff undertook some act to increase the value, then the appreciation would not be divisible property. Passive appreciation is the increases in value due to inflation, economic conditions, or market forces, or some other uncontrollable circumstance. Rising land value in response to the market, without any labor input, has long been considered a passive force. The Court reiterated this principle in this case. Plaintiff argued that his efforts in closing before the contract cutoff date are what made the appreciation separate. But ultimately the Court decided that, while Plaintiff’s acts assured the down payment of the home would not be forfeit, they did not contribute to any increase in property value; that was the result of the market forces alone.

 

 

• Lessons and Observations:

 

1. Plaintiff advanced a very interesting argument, however, one that our law does not recognize. His argument may be stated in another way: But for the acts of the Plaintiff, there would not be any appreciation in value, because Plaintiff’s act was the direct cause in the parties having a marital interest. It almost seemed like the Plaintiff wanted to tie in causation with the traditional notions of “labor, talent, and funds” that typify active increases. While it seems compelling at first, it does not seem that there was any provision that the home would have been lost. Presumably, a failure to close would only have caused the forfeit of the down payment, and the builders would have likely relied on contract remedies, such as specific performance, to ensure that the home would be sold to the parties.
2. If it were the case that the only reason that the home was acquired was due to Plaintiff’s actions, would the result have been different? Still very likely not. Again, if the rise in value was only a result of the market, the gains are passive and therefore divisible.
3. To put in another way, if the land value decreased as a result of a bad market, the loss would be divisible, and Plaintiff would probably not advance an argument that the losses were separate.