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BUYING THE MARITAL HOME WITH PREMARITAL MONEY: ON DIVORCE, DOES IT HAVE TO BE REPAID?

In a contested divorce case, the court must identify each of the major marital assets, subtract any marital debts, and equitably distribute the net marital estate between the parties.  Thus, it is very common to have the marital home valued by the court and the net equity (market value less mortgage balances) distributed between the spouses by the court. Typically, if there is any doubt as to its value one or both parties may retain a real estate appraiser to determine the home’s value, then deduct the mortgage balance and the remaining equity is the number used by the court for the equitable distribution.  As often happens, one of the spouse’s parents might give one or both spouses the cash needed for a down payment, frequently as much as twenty percent of the purchase price. The parents to not require anyone to sign a promissory note, assuming the couple will remain happily married forever. In another common scenario, one spouse uses money acquired before the marriage to buy the marital home, placing the title in the name of both spouses.

But when the divorce occurs, the parents (or the spouse who is the child of the  contributing parents) may argue that it was ‘understood’ that the money from the parents was a ‘loan’ to be repaid on divorce. The other spouse, however, will argue that the money from the parents was a ‘gift’ to the couple with no intention that the money was ever to be repaid, divorce or not.  In the absence of any paperwork such as a promissory note, or ‘thank you’ note for the ‘gift’ and the like, how can this dilemma be resolved?  The consequences can be worth hundreds of thousands of dollars. The same rules can apply for the use of any non-marital (or premarital) money used by one spouse to purchase jointly-titled property during the marriage.

A recent Florida appellate case, Erdman v. Erdman [44 Fla.L.Weekly D2299 (5th DCA 2019)] offers some help.  In this case, the Husband argued that the down payment for the former marital home came from bonuses he received from his boss before the marriage. Title to the house was taken in joint names of the couple with right of survivorship (i.e., as tenants by the entireties). The Wife argued that the  money was a martial gift by the Husband to the couple. The Husband argued that the money was from a non-marital source and he should be credited with the down payment as an unequal equitable distribution.

Florida law (Chapter 61.075(6)(a)(2), Florida Statutes) says that “(a)ll real property held by the parties as tenants by the entireties, whether acquired prior to or during the marriage, shall be presumed to be a marital asset.” The burden of proof is on the spouse arguing that no gift was intended.  The appellate court previously held that “(i)f the property is jointly titled, and the parties’ conduct during the marriage demonstrates joint ownership, the party asserting that no gift was intended must do more that make an unsubstantiated claim, raised for the first tie during a dissolution proceeding.” The court held that  it is “irrelevant how the funds were received or how much each party contributed.”

Another classic scenario is where one party uses his/her inheritance to buy the house and places title to it in joint names, as tenants by the entireties. The court then held that a “husband who used funds form inheritance to purchase marital home but never explained why or how the act of jointly titling he home… constituted anything other than a gift from him to the wife” did not overcome the gift presumption. Finally, the court held that  the testimony of the husband alone that the down payment was made with non-marital funds was insufficient to overcome the marital gift presumption.”

What is the solution these husbands should have used? First, do not place the title to the home in joint names before or after the marriage. Second, have a brief prenuptial agreement carving out from consideration by the court in the event of a divorce the marital home and its passive/active appreciation during the marriage.

 

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