Posted by Nydia Streets of Streets Law in Florida Divorce

When a court decides there should be an unequal distribution of marital assets and debts in a Florida divorce, what factors go into making this decision? Florida Statute 61.075 lists factors a court must consider, which include the length of the marriage and the contribution of each spouse to the property in question. This was an issue in the case Reed v. Reed, 4D2023-2584 (Fla. 4th DCA February 19, 2025).

In this divorce case, the parties owned real estate on which the wife, for a majority of the marriage and during the parties’ separation, solely operated and maintained a bread and breakfast business. Loans were taken out on the property during the parties’ marriage, most of them by the wife, and at one point the parties agreed the husband would not be responsible for the debts associated with the property. The husband agreed the wife should keep the property, but he requested fifty percent of the value, while the wife contended she should receive a higher portion of the equity since she was the only one to pay for and maintain the property and business.

The trial court accepted testimony from the wife’s accountant which established that the wife should receive 80% of the value. The accountants calculations in effect made the husband responsible for fifty percent of the liabilities associated with the property, however. According to the opinion, this was done as follows:

From the gross agreed value of $3,325,000, the accountant deducted the amount outstanding on the two mortgages on the property. She also deducted the amount of depreciation recapture which ordinarily would be required on any sale of the property, as the wife had taken a depreciation deduction on her tax returns. And finally, she deducted closing costs of 8% of the value. This resulted in a net value of $1,632,359, after which she applied the 80/20 split of the net value. After allocating other assets to the husband and the C Road Property to the wife, the wife owed the husband $206,472 as an equalizing payment.

The husband appealed.

The appellate court found no error in the trial court’s determination that the wife should receive an 80% distribution. However, the court reversed as to including the liabilities in the calculation, since doing so effectively made both parties equally responsible for the liabilities on the property. The court held:

We disagree, however, with the way in which the trial court treated the liabilities associated with the property. Rather than apply the same 80/20 allocation of the liabilities as it had with the asset value, the court essentially provided for a 50/50 split of the liabilities. The husband argues that this is error, and we agree. No evidence supports an equal split of the liabilities. The notes were taken out by the wife individually. The first note consolidated the original loans to purchase and build the B&B and was specifically done to relieve the husband of any financial liability on the property. The second was a home equity line of credit, again taken out by the wife alone. The wife gave the husband some of the proceeds from the loan, but the wife received the substantial majority of the funds. The income tax which the accountant stated would be due upon a sale, even though no sale was contemplated, was recapture depreciation from her businesses. The wife also kept all of the income from her two businesses for herself since the husband stopped contributing to the businesses. The accountant calculated that the wife received $1,200,000 in income from the properties over and above the expenses she paid on the property. No testimony from the accountant established why the husband should be responsible for a greater share of the liabilities than his equitable share of the asset. And given the wife’s agreement to remove any financial liability of the husband in exchange for the husband not demanding the sale of the property, one might conclude that the wife should be liable for all the liabilities associated with the property, although the husband did not argue at trial or on appeal that the wife should be solely responsible for all liabilities.

The appellate court also explained reasoning in accounting for potential tax liability upon sale versus potential closing costs:

The husband also contends that the taxes which may be due on sale should not be deducted at all, because no sale is contemplated. However, “[a] trial court is required to consider the consequences of income tax laws on the distribution of marital assets and alimony ordered by it, and failure to do so is ordinarily reversible error.” Nicewonder v. Nicewonder, 602 So. 2d 1354, 1357 (Fla. 1st DCA 1992). Here, the accountant testified that depreciation taken by the business would have to be recaptured on any sale. No one testified to the contrary. “A trial court is not forbidden from accounting for future tax consequences simply because there is no evidence a sale of that asset is imminent.” Bathke v. Costley, 332 So. 3d 1076, 1078 (Fla. 5th DCA 2021). Nevertheless, the liability should be split according to the 80/20 equitable allocation.

As to the accountant’s reduction of the property value due to closing costs, which was also accepted by the trial court, we conclude that the court should not have reduced the value based upon such costs where no sale of the property was contemplated. While it is appropriate to deduct sale costs where a prospective sale is imminent, where no sale is imminent, such costs should not be deducted. See Taber v. Taber, 626 So. 2d 1089, 1090 (Fla. 1st DCA 1993). In this case, the wife sought to retain the property, and no sale was even contemplated. Therefore, closing costs should not have been deducted.

The appellate court affirmed the trial court’s decision to deny the husband’s claim for attorney’s fees and costs, reasoning that his fees amounted to 15% of the lump sum of equitable distribution he was to receive. Ultimately, the case was remanded for equitable distribution to be revised in accordance with the appellate opinion.

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