One of the most important aspects of a divorce is the division of property also known as equitable distribution. Assets can be classified as separate (generally obtained before marriage and kept separate during the marriage with no new contributions during the marriage) and marital (totally obtained during the marriage or assets that would have been separate but have become marital because of certain actions undertaken during the marriage). The distinction between marital and separate property has been blogged by me extensively previously.
However, an interesting question arises when separate property appreciates in value after marriage prior to the divorce or when marital property appreciates in value after a divorce has been commenced. Whether the appreciation should be included or excluded in a divorce resolution is often complicated.
NY law recognizes the concept of "passive" vs "active" appreciation. Here are two easy examples to understand of both. If an asset becomes more valuable without any effort by either spouse to cause the increase it is generally "passive" appreciation. So if an original piece of art that is hanging on the wall was purchased before the marriage and always remained titled in the name of the spouse who made the purchase, if the value of the artwork goes up $100,000 because the artist became "recognized" or the artist stopped making new art or even is now deceased all of those examples would be "passive" appreciation because the owner did nothing to cause the increase in value.
By contrast, a pre-marital business, that during the marriage doubles in size and profits will likely be viewed as having "active" appreciation if it is due to the work and/or effort of either or both spouses during the marriage. If on the other hand the profits grew solely because of market conditions (the product is scarce) and not due to any "work" by either spouse the appreciation will likely be viewed as "passive". A business could also become more valuable and appreciate due to the efforts of a co-owner because the marital owner is a "silent" partner or a non-working partner. So as can easily be seen these questions and distinctions can not only be difficult to calculate but also difficult to prove if what "looks like" marital appreciation is really "passive".
As if this is not confusing enough there can be separate property that appreciates in part due to both passive and active appreciation. For example a house that was worth $500,000 and is now worth $900,000 may have grown in value due to the real estate market undergoing price increases as well as marital money spent during the marriage on renovations and improvements. In that situation, an analysis is necessary of the passive real estate market changes and the value of the improvements made during the marriage.
These issues often require the retention of an experienced matrimonial attorney, the preparation by an expert of a valuation report, the production of documents and possibly depositions of the parties and the business partners.