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Classification of Loan From Parents
© 2003 National Legal Research Group, Inc.
FLORIDA: Taaffe v. Taaffe, 849 So. 2d 1201 (Fla. Dist. Ct. App. 2003).
Funds loaned to both parties by the wife's mother were not a nonmarital contribution to the home where the loan had not been repaid at the time of divorce.
In a dissolution proceeding, the wife alleged that the trial court committed error when it calculated her special equity in the marital home. Prior to the marriage, the wife purchased a house. After the marriage, the couple lived there until 1991 when they jointly purchased the marital home for $110,000. The wife claimed that with regard to the $39,000 in equity in the previously purchased house, $30,000 was used for the down payment on the marital home, and $9,000 was used to make improvements thereon. The wife further asserted that an additional $30,000, which she borrowed from her mother (a note being signed by both parties), was also used for improvements on the marital home and that subsequent to her mother's death she expended another $30,000 derived from her inheritance on additional improvements.
The wife alleged that the trial court erred in arriving at her special equity because it failed to give her credit for the $30,000 in inheritance money that she used for improvements on the property and because it miscalculated the special equities formula. As to the latter, the appellate court concluded that there was no error, stating that the correct formula for determining a special equity was that in addition to that spouse's automatic one-half share the contributing spouse acquires a special equity in the property equal to one-half the ratio which that spouse's contribution bears to the entire consideration. This percentage approach was fair, stated the court, because the contributing spouse had made a capital investment and deserved an enhanced interest in the property and should be permitted to reap any fruits of the investment The simplicity and fairness of the formula lay in the fact that situations of both appreciation and depreciation are adequately covered.
As to the amount of the credit for the initial contributions made by the wife, which constituted $39,000 in proceeds from the sale of her separate property and $30,000 in loan proceeds, the court having already corrected a $10,000 credit mistakenly made by the trial court, the court on appeal concluded that no credit should have been given for the first $30,000, the amount of the loan proceeds. This loan was made by the wife's mother to both parties. The court emphasized that a loan creates a marital debt and does not give rise to a special equity merely because one of the spouses is related to the lender. Special equities are awarded to give the donating spouses the benefit of their investments. Since the wife did not invest $30,000 in nonmarital funds to the original improvements in the property, she was not entitled to a special equity.
The court remanded the matter for a recalculation of the amount of the special equity awarded to the wife. In doing so, it stated that, in applying the formula discussed supra, the entire or total consideration is the cost of the marital home plus any improvements. Although the wife was not entitled to a credit for the $30,000 in loan proceeds, that amount still represented part of the acquisition cost and must be added to the $110,000 sale price of the marital home. To that amount should be added any other contributions made by the wife from her separate property, such as the additional $30,000 in inheritance money received by her to the extent that she can establish on remand that such funds were actually applied to improvements on the home. The court also pointed out that the percentage interests of the parties, the automatic one-half and the one-half ratio which the wife's contribution bears to the entire consideration, must be applied to the market value of the home at the time of dissolution, not the net equity, i.e., the value of the home less the mortgage indebtedness, which was what the trial court had done.
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