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Smith v. Smith8/17/1993
rate property is defined by the statute as including the following:
all . . . property acquired by a spouse before marriage or acquired by a spouse by bequest, devise, descent, or gift during the course of the marriage. . . . Property acquired in exchange for separate property shall remain separate property regardless of whether the title is in the name of the husband or wife or both and shall not be considered to be marital property unless a contrary intention is expressly stated in the conveyance. The increase in value of separate property and the income derived from separate property shall be considered separate property.
N.C. Gen. Stat. § 50-20(b)(2).
The key term in both definitions is "acquired." In Wade v. Wade, 72 N.C. App. 372, 325 S.E.2d 260, disc. review denied, 313 N.C. 612, 330 S.E.2d 616 (1985), this Court adopted a dynamic rather than a static interpretation of the term "acquired" as used in G.S. § 50-20(b), stating "that acquisition must be recognized as the ongoing process of making payment for property or contributing to the marital estate rather than being fixed on the date that legal title to property is obtained." Wade, 72 N.C. App. at 380, 325 S.E.2d at 268-69. This Court further recognized that since acquisition is an ongoing process, property may have a dual nature and consist of both marital property and separate property components. Wade, 72 N.C. App. 372, 325 S.E.2d 260.
By recognizing that acquisition is an ongoing process and that property may have a dual nature, this Court adopted what is known as the "source of funds" approach. Id.; Willis, 86 N.C. App. 546, 358 S.E.2d 571. See also Lawrence J. Golden, Equitable Distribution of Property (1983) (Cum. Supp. 1993 by B. Turner at § 5.07) (hereinafter "Turner") (The source of funds rule is a combination of a payment-based definition of acquired, and the recognition that property may be of a dual, or mixed, nature.). The Court explained the source of funds approach as follows:
Under this [approach], when both the marital and separate estates contribute assets towards the acquisition of property, each estate is entitled to an interest in the property in the ratio its contribution bears to the total investment in the property.
Wade, 72 N.C. App. at 382, 325 S.E.2d at 269 (citation omitted).
In Wade, this Court also distinguished between active and passive appreciation of separate property occurring during marriage and before separation. The Court interpreted that part of G.S. § 50-20(b)(2), which classifies the increase in value of separate property as separate property, as referring only to increases due to passive appreciation, such as that due to inflation or other market forces. Increases due to active appreciation, on the other hand, should be classified as marital property. Wade, 72 N.C. App. 372, 325 S.E.2d 260. Appreciation is considered active when it results from contributions, monetary or otherwise, made by one or both of the spouses. Id. See also Turner, supra § 5.39 at 153 (" Active appreciation is appreciation caused by marital funds or marital efforts . . . .").
This passive versus active distinction for classifying increases in the value of separate property occurring during marriage and prior to separation is a refinement of the source of funds approach and is designed t
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