       DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
                             FOURTH DISTRICT

                         ARICA MATYJASZEK,
                              Appellant,

                                     v.

                        KEVIN R. MATYJASZEK,
                               Appellee.

                             No. 4D17-3575

                         [ September 12, 2018 ]

  Appeal from the Circuit Court for the Nineteenth Judicial Circuit,
Martin County; Sherwood Bauer, Judge; L.T. Case No. 562015DR000733.

   L. Lisa Batts of Stuart Law Group, P.A., Stuart, for appellant.

   Troy W. Klein of Troy W. Klein, P.A., West Palm Beach, for appellee.

ARTAU, EDWARD L., Associate Judge.

   The wife appeals from an Amended Final Judgment of Dissolution of
Marriage, arguing that the trial court erred in using an improper fraction
to measure the marital portion of passive appreciation of the wife’s
nonmarital real property. We agree and reverse.

   Factual Background

   The parties married in October 2011. When the parties married, the
wife owned a home that she had acquired before the marriage. At the
inception of the marriage, the wife’s home was worth $126,000 and was
encumbered by two mortgages: a first mortgage with a balance of
$166,732.38, and a second mortgage with an unspecified balance.

   The second mortgage was taken at some point before the marriage. The
record is conflicting as to whether the original balance of the second
mortgage was $25,000 or $40,000. However, there was no evidence as to
the balance of the second mortgage on the date the parties married.

  During the marriage, the parties lived in the wife’s home and used
marital funds to make payments on the first mortgage, but never made
payments toward the second mortgage. Additionally, the husband made
renovations to the house, but the value of those renovations was not
quantified.

   The wife petitioned for dissolution of marriage in March 2015. As of a
July 2015 valuation date, the wife’s home had a market value of $170,000,
the first mortgage had a balance of $143,253, and the second mortgage
had a balance of $57,095.

   The case proceeded to a final hearing, where the evidence established
the facts set forth above. The trial court then entered a Final Judgment of
Dissolution of Marriage. The wife moved for rehearing of the Final
Judgment, raising the same argument she raises in this appeal. 1 The trial
court denied the wife’s motion for rehearing, but simultaneously entered
an Amended Final Judgment to correct a numerical error.

   In the Amended Final Judgment, the trial court purported to apply the
formula set forth in Kaaa v. Kaaa, 58 So. 3d 867 (Fla. 2010), and Viscito
v. Viscito, 214 So. 3d 736 (Fla. 3d DCA 2017), to determine the marital
portion of the passive appreciation of the home. The trial court found that
the marital portion of the passive appreciation of the home was $81,657.
In reaching this figure, the trial court did not account for the second
mortgage and calculated the debt-to-value ratio at the time of the marriage
to be $166,732.38/$126,000 or 1.323. The trial court next multiplied
1.323 by the $170,000 value of the property at the time of the divorce, and
then subtracted the $143,253 balance of the first mortgage at the time of
the divorce, which yielded $81,657. The trial court then assigned this
$81,657 value to the wife’s column for equitable distribution purposes,
resulting in the wife having to make a $53,911.93 equalizing payment to
the husband.

    This appeal ensued.

    Analysis

  The wife argues, as she did below, that the Kaaa fraction cannot be
applied to measure the passive appreciation of nonmarital property on

1 Because the error appeared for the first time on the face of the Final Judgment,
the wife’s motion for rehearing was a proper vehicle for preserving the issue for
appellate review. See Williams v. Williams, 152 So. 3d 702, 704 (Fla. 1st DCA
2014) (“[W]here an error by the court appears for the first time on the face of a
final order, a party must alert the court of the error via a motion for rehearing or
some other appropriate motion in order to preserve it for appeal.”).

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which more was owed than it was worth at the time of marriage. The wife
points out that this creates an improper fraction—that is, a fraction in
which the numerator is larger than the denominator. The wife maintains
that an improper fraction is not a mathematically valid measurement of
the marital portion of the passive appreciation of the home.

    “A trial court’s legal conclusion that an asset is marital or nonmarital
is subject to de novo review.” Mondello v. Torres, 47 So. 3d 389, 392 (Fla.
4th DCA 2010).          Likewise, a trial court’s “calculation of passive
appreciation is subject to a de novo review.” Hodge v. Hodge, 129 So. 3d
441, 445 (Fla. 5th DCA 2013).

    Section 61.075(6)(a)1.b., Florida Statutes (2014), 2 defines “marital
assets and liabilities” as including the following: “The enhancement in
value and appreciation of nonmarital assets resulting either from the
efforts of either party during the marriage or from the contribution to or
expenditure thereon of marital funds or other forms of marital assets, or
both.”

    In Kaaa, the Florida Supreme Court held that “when a marital home
constitutes nonmarital real property, but is encumbered by a mortgage
that marital funds service, the value of the passive, market-driven
appreciation of the property that accrues during the course of the marriage
is a marital asset subject to equitable distribution” under section 61.075,
Florida Statutes. 58 So. 3d at 872–73.

    The Kaaa opinion sets forth a five-step method that a trial court should
employ in determining a non-owner spouse’s share, if any, of the passive
appreciation of the home: (1) the court must determine the overall current
fair market value of the home; (2) the court must determine whether there
has been a passive appreciation in the property’s value; (3) the court must
determine whether the passive appreciation is a marital asset; (4) the court
must determine the value of the passive appreciation that accrued during
the marriage and is subject to equitable distribution; and (5) after the court
determines the value of the passive appreciation to be equitably
distributed, the court’s next step is to determine how the value is allocated.
Id. at 872.

2The 2014 version of the statute applies because it was the version in effect when
the wife filed the dissolution petition in March 2015. See Busby v. Busby, 671
So. 2d 162, 163 (Fla. 4th DCA 1996) (finding that the applicable version of the
equitable distribution statute is the one in effect when the petition for dissolution
was filed); see also § 11.2421, Fla. Stat. (2014) (adopting the 2014 Florida
Statutes, which remained in effect through June 29, 2015).

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    Based on the circumstances of the case before it, the Kaaa court
approved the following language from Stevens v. Stevens, 651 So. 2d 1306
(Fla. 1st DCA 1995), for determining how the appreciated value is to be
allocated:

       If a separate asset is unencumbered and no marital funds are
       used to finance its acquisition, improvement, or maintenance,
       no portion of its value should ordinarily be included in the
       marital estate, absent improvements effected by marital labor.
       If an asset is financed entirely by borrowed money which
       marital funds repay, the entire asset should be included in the
       marital estate. In general, in the absence of improvements,
       the portion of the appreciated value of a separate asset which
       should be treated as a marital asset will be the same as the
       fraction calculated by dividing the indebtedness with which the
       asset was encumbered at the time of the marriage by the value
       of the asset at the time of the marriage. If, for example, one
       party brings to the marriage an asset in which he or she has
       an equity of fifty percent, the other half of which is financed
       by marital funds, half the appreciated value at the time of the
       petition for dissolution was filed, § 61.075(5)(a) 2, Fla. Stat.
       (1993), should be included as a marital asset. The value of
       this marital asset should be reduced, however, by the unpaid
       indebtedness marital funds were used to service.

Kaaa, 58 So. 3d at 872 (quoting Stevens, 651 So. 2d at 1307–08)
(emphasis in Kaaa). 3

   Thus, reading step five of Kaaa in conjunction with the italicized
language of Stevens, we conclude that the Florida Supreme Court

3 In response to Kaaa, the legislature recently amended section 61.075 to
establish a new statutory formula—based on the total reduction of mortgage
principal by marital funds—for determining the marital share of passive
appreciation of nonmarital property during the marriage. See Laws of Fla. 2018,
c. 2018-56, § 1, eff. July 1, 2018. The new formula also caps the total marital
portion of the property at “the total net equity in the property at the date of
valuation,” and allows a party to argue that application of the formula would be
inequitable under the particular facts of the case. § 61.075(6)(a)1.c.(IV), (V), Fla.
Stat. (2018). If the new statutory formula were applied to this case, the husband
would not be entitled to any portion of the value of the wife’s home because the
total net equity in the property is negative. However, the new version of the
statute does not apply to this case.


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established the following general formula 4 for allocating the value of
passive appreciation to be equitably distributed:

        Mortgage Debt at Marriage
                                   × Value of Passive Appreciation
        Property Value at Marriage

   Turning to the facts of this case, we conclude that the trial court erred
in using an improper fraction to calculate the portion of passive
appreciation of the wife’s nonmarital property that was subject to equitable
distribution.

    Under step four of Kaaa, the trial court should have determined that
the value of passive appreciation that accrued during the marriage and
was subject to equitable distribution was $44,000, which was the
difference between the $170,000 value of the wife’s nonmarital property at
the time of the divorce and the $126,000 value of the wife’s nonmarital
property at the time the parties married. 5 Then, under step five of Kaaa,
the trial court should have determined that, because the property had no
equity when the parties married, 100% of the value of the passive
appreciation was to be allocated as a marital asset.

    The purpose of step five of Kaaa is to determine how much of the value
of passive appreciation to allocate as marital property and how much to
allocate as the owner spouse’s nonmarital property. Notably, the Kaaa
decision recognized that the debt-to-value ratio was merely a rule to be
applied “in general.” The Kaaa court did not address a situation where
the property started with negative equity, nor did the court hold that the
debt-to-value ratio is to be applied even when it leads to a mathematically
absurd result. Under step five of Kaaa, it is mathematically impossible to
allocate more than 100% of the value of the passive appreciation of the
property.



4 Our interpretation of the Kaaa formula differs somewhat from the Third
District’s interpretation of Kaaa in Viscito v. Viscito, 214 So. 3d 736, 738 (Fla. 3d
DCA 2017). There, the Third District used the following formula to calculate the
marital portion of passive appreciation: the current market value of the property,
multiplied by the loan-to-value ratio at the time of the marriage, minus the
current mortgage balance. Id.

5 To the extent that the $170,000 value at the time of the divorce was attributable
to renovations in the home, this value was never quantified. Thus, our analysis
will treat the entire amount of appreciation as passive appreciation.


                                         5
    In this case, the answer to the allocation question is set forth in the
following language from Kaaa: “If an asset is financed entirely by borrowed
money which marital funds repay, the entire asset should be included in
the marital estate.” Id. at 872 (quoting Stevens, 651 So. 2d at 1307). In
such a situation, a trial court need not reach the debt-to-value fraction
under Kaaa to calculate the marital portion of passive appreciation. Here,
because the wife entered the marriage with a property encumbered entirely
by a mortgage which marital funds repaid, the entire value—or 100%—of
passive appreciation should be included in the marital estate. Thus, the
trial court erred in using a debt-to-value fraction of 1.323, which had the
effect of falsely inflating the value of the passive appreciation to be
allocated.

   Therefore, under a correct application of the principles of Kaaa, the
entire $44,000 value of the passive appreciation of the home was a marital
asset subject to equitable distribution. 6

   Furthermore, although the husband argued below that the paydown of
the first mortgage should be treated as a marital asset in addition to the
passive appreciation on the property, we note that the husband has not
cross-appealed the Amended Final Judgment. And, even if he had, we find
that the husband offered no proof below that the total mortgage
indebtedness on the property decreased during the marriage. 7

   For the foregoing reasons, we reverse the Amended Final Judgment and
remand with instructions for the trial court to value the marital portion of


6 We disagree, however, with the wife’s argument that the marital value of the
passive appreciation of the property is $26,747. The wife reached this figure by
multiplying $170,000 by 100%, and then subtracting the $143,253 balance on
the first mortgage. In other words, the wife’s analysis relies upon the Viscito
formula, using a coverture fraction of one and considering only the first mortgage.

7 Although the parties reduced the first mortgage balance by $23,479 during the
marriage, the second mortgage balance simultaneously increased by an
unspecified amount. We find that it would have been improper to look at the
paydown of the first mortgage in isolation, which is what the husband urged the
trial court to do. Under section 61.075(6)(a)1.b., the husband was required to
show that there was an “enhancement in value” of the wife’s nonmarital property
“resulting . . . from the contribution to or expenditure thereon of marital funds.”
§ 61.075(6)(a)1.b., Fla. Stat. (2014). Thus, absent proof that the parties reduced
the total mortgage indebtedness on the property during the marriage, the
husband failed to make a showing that the parties’ marital funds created any
enhancement in the value of the home apart from passive appreciation.

                                        6
passive appreciation of the wife’s property at $44,000 and to adjust the
equitable distribution scheme accordingly.

   Reversed and Remanded.

LEVINE and FORST, JJ., concur.

                          *        *        *

   Not final until disposition of timely filed motion for rehearing.




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