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The Treatment of Income and Appreciation on Non-Marital Property, in Minnesota Divorce

An increase in the value of non-marital property during the marriage is still non-marital. [1] For example, if you buy a painting prior to the marriage for $10,000, and during the marriage it increases in value to $100,000, the entire value of the painting remains non-marital. However, income earned during the marriage from non-marital assets is marital. [2] For example, if you own rental property prior to the marriage, the rental income received during the marriage is deemed marital, because it was “earned" during the marriage. [3] Another example would be dividends earned during the marriage from premarital shares of stock. The dividends paid are treated as marital earnings. [4] Interest on a non-marital bank account during the marriage would likewise be marital. [5] Caveat: the Court distinguishes between active and passive appreciation. If the appreciation of an asset is due to efforts or expenditures made by either party during the marriage, then the appreciation is marital. [6] For example, if during the marriage, there is active management and improvement of the property — i.e., some investment of marital money, labor, or entrepreneurial decision-making — then the appreciation is marital. Id. Merely paying taxes on non-marital property during the marriage, however, does not create a marital interest in the otherwise non-marital property. [7]

Footnotes:

  1. Minnesota Statute section 518.003, Subdivision 3b(c).
  2. Gottsacker v. Gottsacker, 664 N.W.2d 848, 854 (Minn. 2003).
  3. Campion v. Campion, 385 N.W.2d 1 (Minn.Ct.App. 1986).
  4. Nardini v. Nardini, 414 N.W.2d 184 (Minn. 1987).
  5. Swick v. Swick, 467 N.W.2d 328 (Minn.Ct.App. 1991).
  6. Swick v. Swick, 467 N.W.2d 328 (Minn.Ct.App. 1991).
  7. See Gottsacker v. Gottsacker, 664 N.W.2d 848, 854 (Minn. 2003) (use of marital funds to pay taxes on undistributed Subchapter S corporate income did not create a marital interest).

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