Under Ohio law, Revised Code Section 3105.171, a domestic relations court must equitably divide marital property prior to granting a divorce. However, “equitably” does not mean “equally.” When determining whether property is “marital” or “separate” property, a Court must determine whether the property was acquired during the marriage. If the property is separate, the Court must award such property to the party with the separate interest in the property. For example, if a husband in a divorce inherits $250,000 from his parents during the marriage, the $250,000 would be separate property. Now imagine that the husband puts the $250,000 down to purchase his marital home. The $250,000 is still his separate property, assuming the husband can trace the $250,000 back to his inheritance.
Passive appreciation is when the value of something goes up because of uncontrollable conditions, like a better real estate market. Active appreciation is when the value of something goes up because of controlled conditions, like home improvements. Under R.C. 3105.171, the passive appreciation on the value of separate property remains separate property. So, in the above example, if the parties sell the house for $275,000 during a divorce because of better market conditions, the husband would retain the entire $275,000 (his $250,000 inheritance plus the passive appreciation on the property).
However, if the parties decide to do some home renovations like remodeling a kitchen and finishing a basement, the appreciation on the home could be a result of market conditions (passive), the improvements (active), or a combination of both. Under R.C. 3105.171(A)(4), “passive income” or passive appreciation is defined as “income acquired other than as a result of the labor, monetary, or in-kind contribution of either spouse.” Thus, if wife can prove that the appreciation on the home was a result of the improvements to the home, the appreciation would be marital property, even if the husband was the party that did all of the work or improvements to the home! Therefore, parties that have utilized inheritance monies in purchasing their home should think twice before doing those home renovations!