Family law, and particularly property division in divorce, can be one of the most intricate areas of legal practice. While many divorces settle before ever reaching a trial or appellate court, those that do end up in higher courts frequently develop or refine important legal principles. In Nebraska, two cases stand out as particularly influential in recent years when it comes to divorce and property division:
- Stava v. Stava
- Stephens v. Stephens
These cases address nuanced questions: How do courts differentiate between “marital” and “nonmarital” property? What happens when one spouse brings certain property into the marriage, and marital funds later enhance that property’s value or equity?
Below, we examine both decisions, explore how Nebraska courts tackle this classification process, and discuss the legal doctrines that emerged.
Nebraska Divorce & Property Division: How Stava v. Stava and Stephens v. Stephens Reshaped the Rules
Background: Nebraska’s General Approach to Property Division
Before jumping into the specifics of Stava v. Stava and Stephens v. Stephens, it helps to understand Nebraska’s broader approach to property division in divorce. Under Nebraska law, courts aim to equitably divide the marital estate. Nebraska Statute § 42-365 provides that in making a division of property, courts consider factors such as:
- The circumstances of the parties,
- The duration of the marriage,
- The history of contributions by each spouse (including both financial and non-financial contributions), and
- The goal of achieving a fair, equitable result.
Generally, all property accumulated by either spouse during the marriage is deemed “marital property,” while assets acquired by a spouse before marriage or by inheritance or gift (to one spouse individually) are deemed “nonmarital property.” Once these determinations are made, the court places values on the marital assets, assigns debts, and works to divide the net marital estate—often awarding each spouse roughly one-third to one-half of the total, subject to adjustments for fairness.
Stephens v. Stephens (2017)
Facts and Procedural History
In Stephens v. Stephens, 297 Neb. 188, 899 N.W.2d 582 (2017), the Nebraska Supreme Court clarified how courts should analyze the classification of property that has both marital and nonmarital characteristics. The couple had been married for some time, and multiple assets were at issue, including certain accounts and real property. One spouse claimed that portions of these assets should remain entirely nonmarital because they were acquired before the marriage or through inheritance.
However, the other spouse argued that over the course of the marriage, the allegedly nonmarital assets became so commingled with marital funds that the distinction blurred. In short, they claimed that these properties had become “transmuted” into marital property or, at a minimum, had accrued additional marital value due to efforts made or funds contributed during the marriage.
Key Legal Concepts in Stephens
1. Transmutation and Commingling
A primary takeaway from Stephens v. Stephens is the court’s analysis of “transmutation” and “commingling.” Property that starts out as nonmarital can lose its separate identity if it is intermingled with marital property to such an extent that it becomes impossible to distinguish which funds are separate and which are marital. If that occurs, courts may treat the entire property as marital.
2. Active vs. Passive Appreciation
The Nebraska Supreme Court has, in many decisions, differentiated between active and passive appreciation.
- Active appreciation means an increase in value resulting from marital contributions—financial investments, improvements, personal efforts, or other ways the spouses actively enhance the asset’s worth. This type of appreciation is typically considered marital because it arises from marital labor or marital funds.
- Passive appreciation, on the other hand, results from external factors such as market forces or inflation. If the underlying asset is entirely nonmarital and remains separate, purely passive appreciation will generally stay with the original owner.
3. Burden of Proof
In Stephens, the court reiterated that the burden of proof rests on the party who claims a certain asset or portion of an asset is nonmarital. If that party fails to provide records, documentation, or evidence tracing the separate property, the court may presume the entire asset is marital.
Importance of Stephens v. Stephens
Stephens solidified several guiding principles for Nebraska practitioners and litigants in divorce cases. Chief among them is the importance of meticulous record-keeping. When spouses claim that property (or part of an asset’s value) is separate, they bear the burden of tracing its history. Failing to present clear evidence often results in the entire asset being classified as marital.
Moreover, Stephens underscores the court’s focus on whether enhancements or increases in value came from marital funds or efforts. If they did, that growth is typically shared. If they did not, and the asset was neither commingled nor used in a way that transmuted it, the growth often remains separate.
Stava v. Stava (2024)
Facts and Procedural Background
More recently, the Nebraska Supreme Court addressed similar issues but added a critical new dimension in Stava v. Stava, ___ N.W.3d ___ (Neb. 2024). This case involved a couple married for about 18 years. The husband had purchased two adjacent lots (Lot 14 and Lot 15) before the marriage. Over time, these properties became encumbered by loans on which both spouses were borrowers, and crucially, marital funds were used to pay down the principal balances.
1. Lot 14 (Marital Residence)
- Before the marriage, the husband purchased the lot, built a residence, and had a mortgage.
- At marriage, there was equity already in the property, theoretically belonging to the husband as nonmarital.
- Nonetheless, once married, both spouses made payments toward the mortgage using marital funds; eventually, those loans were refinanced multiple times in both spouses’ names.
2. Lot 15 (Barn and Business)
- Lot 15 was purchased by the husband before the marriage.
- Even so, the parties financed construction of a barn on the property together (with both spouses as borrowers), and they used the property for the wife’s horse training business.
- Marital funds serviced the debt on the barn, and, in time, the principal was significantly paid down during the marriage.
Given the lengthy mortgage paydowns and refinances with marital funds, both properties gained substantial equity and appreciated in value. The trial court initially treated most of this real estate as the husband’s nonmarital property, awarding the wife some compensation but leaving the husband with the bulk of the increased property value.
The Source of Funds Rule
On appeal, the Nebraska Supreme Court recognized a gap in Nebraska’s jurisprudence and expressly adopted the “source of funds” rule—a legal doctrine widely accepted across the United States.
- Under the source of funds rule, acquisition of encumbered property happens when and to the extent the mortgage principal is paid off. If that payoff comes from marital funds (earnings, joint accounts, etc.), then the marital estate acquires an interest in the property proportionate to those contributions.
- Moreover, passive appreciation attaches to each respective interest in proportion to its share of the total contributions. Thus, when a nonmarital property sees its mortgage gradually paid down with marital funds, the marital estate is entitled not only to the principal paydown but also to an appropriate share of any passive appreciation on that newly created marital equity.
Why Stava Is Important
- Mathematical Framework: The Court in Stava laid out a clear method (often expressed in formulas) for determining the split between nonmarital and marital interests when both sets of funds have contributed to the purchase or equity buildup of property.
- No More Merely Refunding Principal: In earlier Nebraska cases, courts sometimes tried to treat marital contributions as though the spouse who paid out of marital funds merely gets a “refund” plus possibly some active appreciation. Stava clarifies that if the property has appreciated—passively or actively—the marital share of that equity appreciates proportionately.
- Bringing Nebraska in Line with Other Jurisdictions: Many states have long applied the source of funds doctrine. Stava signals a modernization of Nebraska law, aligning it with the mainstream approach used across the nation.
Comparing Stephens and Stava
Although both cases deal with property division, there are several important distinctions:
1. Primary Legal Issues
- Stephens focuses heavily on commingling and active vs. passive appreciation, emphasizing whether a spouse can prove certain contributions or isolations of funds. The discussion centers on transmutation—when separate property blurs into the marital estate due to how it’s used or titled.
- Stava highlights how marital funds used to pay mortgage principal on a premarital asset create a marital stake in that asset. Rather than revolve around commingling per se, the core question was whether the marital estate “acquired” a share of the property by paying off the debt.
2. Scope of Newly Articulated Doctrine
- While Stephens reaffirmed existing law, Stava effectively introduced the source of funds rule as a distinct, explicit basis for courts to divide equity and appreciation.
- Stephens teaches courts to trace property and see if it remains segregated. If it is “traceable,” it stays separate. If not, it is presumed marital.
- Stava, on the other hand, teaches that even if a spouse can “trace” original funds to a premarital purchase, using marital money to reduce debt shifts some portion of the property’s equity into the marital column, together with any associated appreciation.
3. Practical Consequences
- Record-Keeping: Both decisions underline how crucial it is for spouses to keep meticulous records of their assets, debts, and sources of payments. In Stephens, lacking clarity or documents can lead a court to classify an asset as marital. In Stava, lacking records on mortgage payments can make it difficult to apply the source of funds formula accurately.
- Strategic Considerations: For practitioners, these cases stress the importance of knowing exactly how to present evidence of principal paydowns, appraisals, improvements, and pre/postmarital contributions. Litigants must be prepared to show these details if they hope to claim certain amounts of property are separate or if they seek to prove a portion must be included in the marital estate.
The Road Ahead: Practical Tips for Spouses and Attorneys
1. Maintain Documentation
From mortgage statements to bank records, thorough documentation of each payment (including its source) helps clarify future disputes about property classification.
2. Consider Preventive Measures
Couples sometimes use prenuptial or postnuptial agreements. If a spouse anticipates using marital funds to improve or pay down debts on separate property, a well-structured agreement can preemptively address how to split that equity.
3. Engage Financial Experts
If properties have appreciated over many years, divorcing spouses may want to hire a forensic accountant or real estate appraiser to determine values at different points in time and trace the interplay of marital and nonmarital funds.
4. Communicate and Negotiate Early
While Stava and Stephens clarify certain legal rules, litigation can be costly and stressful. If spouses can negotiate a settlement with full knowledge of how courts might classify their assets, they can often save considerable time, money, and turmoil.
Conclusion
Stava v. Stava and Stephens v. Stephens are watershed cases for Nebraska family law. While Stephens reaffirmed the importance of tracing, commingling, and active vs. passive appreciation, Stava explicitly articulated the source of funds rule, confirming that when marital money pays down a mortgage on separate property, the marital estate gains a proportionate ownership interest—along with a fair share of any appreciation.
These decisions ultimately reflect Nebraska’s underlying goal of equitable division. By clarifying how nonmarital property can become, at least partially, marital, they encourage fairness in long-term marriages where both spouses have contributed resources. They also encourage spouses to maintain good records and perhaps craft premarital or postmarital agreements when significant property interests are at stake.
For divorcing couples and legal practitioners, Stava and Stephens underscore that “who pays for what” matters greatly—and that even seemingly straightforward property classifications can become complex through decades of shared financial activity. Understanding these cases, staying organized with financial records, and seeking professional guidance are the best ways to navigate the intricate questions of property division that Nebraska’s courts continue to address.
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