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Active Appreciation vs. Passive Appreciation of Assets in Georgia Divorce
In a previous post included in our Celebrity Divorce Chronicles series, we discussed the divorce of Oklahoma oil tycoon Harold Hamm from his wife of 26 years, Sue Ann Arnall (formally Sue Ann Hamm). Ultimately, an Oklahoma court ruled that Harold Hamm, founder of Continental Resources, must pay Sue Ann Arnall a settlement of roughly $1 billion dollars. The court concluded that the $1 billion settlement represented an equitable division of the couple’s marital estate, which had been valued at around $18 billion.
Both parties appealed the trial court’s decision. Mr. Hamm contends that the marital settlement is too much. On the other hand, Ms. Arnall contends that although $1 billion is a significant amount of money, the $1 billion payment is not a fair or equitable division of the couple’s marital assets. The legal and financial concept at the heart of the couple’s dispute is active appreciation vs. passive appreciation.
Active Appreciation of Assets
Active appreciation is the increase in the value of certain assets that can be attributed, at least in part, to the contributions or efforts of either spouse. Put another way, if a person owns a company, and that company grows and succeeds because of the ideas, leadership and business acumen of the owner, that increase in value is due to active appreciation.
Passive Appreciation of Assets
Passive appreciation is the increase in the value of certain assets due to outside market forces such as supply and demand and inflation. For example, let’s say Person A bought a parcel of land 20 years ago. Upon purchase the parcel was worth $10,000. Over the alast 20 years, Person A made no improvements to the land, but the area around that parcel was successfully developed over the past 20 years. Today, due to no efforts on the part of Person A, the parcel is now worth $100,000. This is passive appreciation.
Georgia and Oklahoma are both equitable division states, meaning that marital assets are divided equitably or fairly upon divorce. Additionally, both Georgia and Oklahoma employ the concept of passive vs. active appreciation of assets similarly in the context of dividing assets upon divorce. Thus, using the Hamm’s Oklahoma divorce as an example may be particularly helpful in understanding active vs. passive appreciation in Georgia divorce.
Under Oklahoma law, the amount attributed to the active appreciation of separate, premarital assets over the term of the marriage is subject to division in divorce; the amount that passively appreciated is not. Harold started continental Resources before he married Sue Ann. Thus, although it may seem counterintuitive, it is in his best interest to argue that the tremendous success of Continental Resources was largely due to the whims of a fickle commodities market, or just good luck, not due to his active participation and decision making. Maintaining this position allows Harold to argue the success of his company was due to passive appreciation. Thus, any increase in value should be deemed separate property not subject to equitable division upon divorce.
Alternatively, it is in the best interest of Sue Ann to argue that the success of Continental was largely the result of Harold’s skills and his successful active management of the company. Because she also worked for the company, it is also in Sue Ann’s best interest to argue that the company’s success is also the result of her hard work and successful management. Sue Ann is best served by taking this position, because any increase in the value of the company attributed to active work of one or both spouses is deemed active appreciation, subject to equitable division upon divorce.
Active vs. passive appreciation is a very complicated concept in Georgia divorce law. Thus, the examples discussed above should not be relied upon to determine whether you or your spouse is entitled to the benefit of a certain asset upon divorce. If you are considering divorce, and have question regarding how the concept of active vs. passive appreciation may apply to your specific case, contact one of our knowledgeable and experienced Atlanta divorce attorneys today.