Parde v. Parde

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
03/17/2023 08:05 AM CDT
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Nebraska Supreme Court Advance Sheets
313 Nebraska Reports
PARDE V. PARDE
Cite as 313 Neb. 779Cynthia A. Parde, appellant,
v. Arlan D. Parde, appellee.
___ N.W.2d ___
Filed March 17, 2023. No. S-21-497.
1. Divorce: Child Custody: Property Division: Alimony: Attorney
Fees: Appeal and Error. In a marital dissolution action, an appellate
court reviews the case de novo on the record to determine whether there
has been an abuse of discretion by the trial judge in his or her determi-
nations regarding custody, child support, division of property, alimony,
and attorney fees.
2. Evidence: Appeal and Error. In a review de novo on the record, an
appellate court is required to make independent factual determinations
based upon the record, and the court reaches its own independent con-
clusions with respect to the matters at issue.
3. Judges: Words and Phrases. A judicial abuse of discretion exists if the
reasons or rulings of a trial judge are clearly untenable, unfairly depriv-
ing a litigant of a substantial right and denying just results in matters
submitted for disposition.
4. Divorce: Property Division: Equity. Neb. Rev. Stat. § 42-365 (Reissue
2016) authorizes a trial court to equitably distribute the marital estate
according to what is fair and reasonable under the circumstances.
5. Divorce: Property Division. In a marital dissolution action, the pur-
pose of a property division is to distribute the marital assets equitably
between the parties.
6. ____: ____. In a marital dissolution action, there is no mathematical
formula by which property awards can be precisely determined, but as
a general rule, a spouse should be awarded one-third to one-half of the
marital estate, the polestar being fairness and reasonableness as deter-
mined by the facts of each case.
7. ____: ____. The appreciation or income of a nonmarital asset during
the marriage is marital insofar as it was caused by the efforts of either
spouse or both spouses.
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Nebraska Supreme Court Advance Sheets
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PARDE V. PARDE
Cite as 313 Neb. 7798. Divorce: Property Division: Presumptions. Accrued investment earn-
ings or appreciation of nonmarital assets during the marriage are pre-
sumed marital unless the party seeking the classification of the growth
as nonmarital proves: (1) The growth is readily identifiable and trace-
able to the nonmarital portion of the account and (2) the growth is not
due to the active efforts of either spouse.
9. Divorce: Property Division. Any given property can constitute a mix-
ture of marital and nonmarital interests; a portion of an asset can be
marital property while another portion can be separate property.
10. ____: ____. The original value of an asset may be nonmarital, while all
or some portion of the appreciation of that asset may be marital.
11. ____: ____. In a marital dissolution action, the equitable division of
property is a three-step process. The first step is to classify the par-
ties’ property as either marital or nonmarital, setting aside the non-
marital property or nonmarital portion of the property to the party
who brought the property to the marriage. The second step is to value
the marital assets and marital liabilities of the parties. And the third
step is to calculate and divide the net marital estate equitably between
the parties.
12. Divorce: Property Division: Real Estate. Whether appreciation in real
estate is active or passive depends on the facts and circumstances of
each case.
13. Divorce: Property Division: Proof. The burden is on the owning
spouse to prove the extent to which marital contributions did not cause
the appreciation or income.
14. Divorce: Property Division: Equity. The equity in property at the time
of marriage is a nonmarital asset which, if established, should be set
aside as separate property.
15. Divorce: Property Division: Presumptions: Gifts. Gifts and inherit­
ances, even when received during the marriage, are presumed to be
nonmarital.
16. Evidence: Appeal and Error. When evidence is in conflict, the appel-
late court considers and may give weight to the fact that the trial court
heard and observed the witnesses and accepted one version of the facts
rather than another.
Petition for further review from the Court of Appeals,
Moore, Riedmann, and Arterburn, Judges, on appeal thereto
from the District Court for Gage County, Ricky a. Schreiner,
Judge. Judgment of Court of Appeals affirmed as modified, and
cause remanded with directions.
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313 Nebraska Reports
PARDE V. PARDE
Cite as 313 Neb. 779John W. Ballew, Jr., and Steven D. Burns, of Ballew Hazen,
P.C., L.L.O., for appellant.
Terrance A. Poppe and McKynze P. Works, of Morrow,
Poppe, Watermeier & Lonowski, P.C., L.L.O., for appellee.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Cassel, J.
I. INTRODUCTION
We granted further review of a Nebraska Court of Appeals
decision 1 applying the active appreciation rule to agricul-
tural land in a marital property division. We agree that the
rule applies to such land and that the owning spouse failed
to show the appreciation in value of the land was not caused
by the active efforts of either spouse. We affirm the decision
of the Court of Appeals as modified and remand the cause
with directions.
II. BACKGROUND
Arlan D. Parde and Cynthia A. Parde (Cindy) married in
April 1994. It was a second marriage for both parties. In
January 2019, the parties separated and Cindy filed a complaint
for dissolution of the marriage.
The district court conducted a trial in February 2021. The
court received over 80 exhibits and heard the testimony of four
witnesses: Cindy, Cindy’s daughter, Arlan, and Arlan’s sister.
Our inquiry upon further review is focused on the nonmarital
and marital portions of various parcels of agricultural land.
1. Farming Operation
The evidence established that both before and during
the marriage, Arlan maintained a farming operation. Over the
course of the parties’ 26-year marriage, Arlan and Cindy both
contributed to the farming operation.
1
Parde v. Parde, 31 Neb. App. 263, 979 N.W.2d 788 (2022).
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PARDE V. PARDE
Cite as 313 Neb. 779An agricultural balance sheet from January 1994 showed
that Arlan had assets of $715,336, including land, and liabili-
ties of $393,989. Several months after the marriage, Cindy
signed a financing statement and security agreement obligating
her for all of Arlan’s bank loans. Throughout the marriage,
the parties had one checking account which they used for the
deposit of all proceeds from the sale of cattle, crops, machin-
ery, and property disposed of during the marriage. They paid
farming operation expenses from the checking account.
On a balance sheet near the date of separation, the parties
listed their net worth as approximately $1.6 million. With
updated real estate values, their net worth was over $2 mil-
lion. When Arlan’s counsel asked if the increase in wealth
from $400,000 to about $2 million came from anywhere aside
“from the land, the dairy, the farm operation, the things that
not only [he] had before the marriage but the two of [them]
worked at during the marriage,” Arlan added that he started
“trucking.” Arlan did not provide any additional testimony
regarding the increased value or appreciation in value of the
land or farming operation.
2. Parcels of Property
The dispute centers on the marital portion of five properties.
We set forth the evidence related to each parcel.
(a) Fertilizer Plant
Prior to the marriage, Arlan bought the land called Fertilizer
Plant, consisting of approximately 113 acres of dry cropland,
for $90,720. At the time of the parties’ marriage, Fertilizer
Plant was worth approximately $70,000. Arlan testified that
he “paid off” this property prior to the marriage, but Cindy
testified that they eliminated the debt during the marriage.
Arlan sold 19 acres between 1993 and 2000. The money from
the sales went into the farming bank account to pay loans.
At the time of the parties’ separation, Fertilizer Plant was
worth $403,750.
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PARDE V. PARDE
Cite as 313 Neb. 779(b) Home Place
In 2002, the parties built a house on 5 acres of Fertilizer
Plant and called it Home Place. The house and land were
appraised at $385,000. The parties stipulated that the land had
a value of $25,000. A 2016 survivorship warranty deed con-
veyed the property to Arlan and Cindy as joint tenants.
(c) Lenard’s Farm
Arlan purchased property called Lenard’s Farm, consisting
of 160 acres of dry cropland, for $42,000 in 1991. On Arlan’s
1994 agricultural balance sheet, he listed the property’s value
at $64,000. At the time of marriage, he owed $40,000 for
the property.
Within 2 weeks of the marriage, Arlan presented Cindy with
a promissory note for $60,000 and asked her to sign it. The
promissory note included $40,000 from the initial Lenard’s
Farm loan, plus an additional $20,000. The parties paid off the
note during the marriage. Throughout the marriage, portions
of the land were sold and the funds were deposited into the
marital checking account. In 2002, the parties sold a portion
of Lenard’s Farm, along with other farmland, and purchased
property called Holmesville Farm in a “1031 exchange.” Arlan
explained a 1031 exchange as a way to avoid paying capital
gains tax when “you sell . . . a piece of property, and you
transfer the proceeds from that to another piece of property that
you’re purchasing within a certain time.”
At the time of separation, Lenard’s Farm consisted of 36
acres and was valued at $153,000. Arlan asserted that he
should be awarded the property at a value of $40,000, repre-
senting the amount that he owed on Lenard’s Farm at the time
of marriage.
(d) Grandma’s Farm
In September 2003, Arlan and Cindy purchased property
called Grandma’s Farm, consisting of 160 acres of dry crop-
land, from Arlan’s mother. The joint tenancy warrant deed
showed consideration of $80,000. Internal notes from the
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Nebraska Supreme Court Advance Sheets
313 Nebraska Reports
PARDE V. PARDE
Cite as 313 Neb. 779parties’ bank reflect that on September 29 the bank advanced
$80,296 for the purchase. The loan was to be paid over the
course of 15 years.
Arlan testified that after purchasing the land for $80,000,
his mother wrote him a check for $20,000—25 percent of
the purchase price—as an inheritance. Arlan’s sister testified
that she also received $20,000 at that time from their mother.
Arlan claimed that he applied the $20,000 to the purchase
price of Grandma’s Farm and borrowed the rest from the
bank. He did not have a copy of the check he claimed to have
received from his mother. Bank records show normal monthly
payments and do not reflect a $20,000 payment toward
the loan.
Cindy testified that the parties paid $80,000 to the bank
“and then we received $20,000 credit” from Arlan’s mother.
Cindy’s counsel asked, “So to clarify this: Perhaps, the ground
was supposed to be sold for $100,000, and instead it was sold
for 80 and you went to the bank and got the bank note to pay
the 80?” Cindy answered, “Correct.” She did not recall that
they received a check. She testified that Arlan’s three siblings
“received $20,000 credit” and testified “[t]hat came out of the
[$]80,000 that was paid is the way I understood it.” Cindy felt
the $20,000 was a gift to both of them.
At the time of separation, Grandma’s Farm had a value of
$236,000 and 68 acres remained from the original purchase.
Arlan claimed that 25 percent of its appraised value was non-
marital, because he bought it from his mother for $80,000, but
received $20,000 back from her.
(e) Holmesville Farm
During the marriage, the parties purchased property called
Holmesville Farm, which is irrigated cropland, for $249,000.
As noted earlier, in 2002, the parties purchased Holmesville
Farm in a “1031 exchange.”
Arlan claimed that 61 percent of the purchase price was
nonmarital, because they purchased it with $32,000 related
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PARDE V. PARDE
Cite as 313 Neb. 779to the Lenard’s Farm sale and with $121,500 of sale pro-
ceeds from property called Rademacher Farm. At the time of
marriage, Arlan valued Rademacher Farm at approximately
$70,000 with debt of $27,500. Thus, at the time of marriage,
Arlan’s equity in Rademacher Farm was $42,500. In 2002,
Arlan sold Rademacher Farm for $149,000.
During the marriage, a storm damaged an irrigation pivot
and the equipment was replaced through insurance funds.
Holmesville Farm was valued at $734,000 at the time of sepa-
ration. Arlan contended after reducing that amount by 61 per-
cent, the marital value of the property was $286,260.
3. District Court’s Decree
The district court found that Arlan met his burden of proof
“with respect to property owned by [Arlan] prior to the mar-
riage and . . . with respect to the tracing of the proceeds from
the sale of portions of property that [he] owned prior to the
marriage.” The district court did not mention appreciation or
cite any case law discussing it.
The district court approved Arlan’s proposed division of the
land. Thus, it awarded Fertilizer Plant to Arlan and did not
include any of the property’s value as marital property. After
setting aside nonmarital portions, the court awarded Arlan as
marital property Home Place valued at $361,000, consistent
with Arlan’s proposed division of property listing that number
along with “$386,000.00 [-] $25,000.00.” It awarded Arlan
Lenard’s Farm valued at $40,000. With respect to Grandma’s
Farm, the district court found that Arlan’s mother “gifted back”
to him $20,000 and that he should receive credit for that gift.
It awarded him the property with a marital value of $177,000,
which we observe to be 75 percent of $236,000. The district
court found that placing a marital value on Holmesville Farm
of $286,260 was appropriate, citing a 2007 decision by the
Court of Appeals. 2
2
Shafer v. Shafer, 16 Neb. App. 170, 741 N.W.2d 173 (2007), modified on
denial of rehearing 16 Neb. App. 327, 743 N.W.2d 781 (2008).
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PARDE V. PARDE
Cite as 313 Neb. 779The district court divided the net marital estate equally.
Thus, it ordered Arlan to make an equalization payment of
$398,664.88 to Cindy.
4. Court of Appeals
Cindy appealed, assigning numerous errors. Some of the
errors concerned the district court’s classification, valuation,
and division of the marital estate.
The Court of Appeals recognized that we had not directly
applied the active appreciation rule to farmland. After review-
ing our decisions in Stanosheck v. Jeanette 3 and Stephens v.
Stephens, 4 the Court of Appeals determined that the rule should
apply to agricultural land.
As will be discussed further in our analysis, the Court
of Appeals disagreed with the district court’s determinations
regarding each of the five parcels. It reversed this portion
of the district court’s decision and remanded the cause with
directions to equitably divide the marital estate in accordance
with the Court of Appeals’ classifications of marital value and
Arlan’s nonmarital value.
Arlan filed a petition for further review, which we granted.
III. ASSIGNMENTS OF ERROR
Arlan assigns five errors in his petition for further review,
each dealing with a particular parcel of land. He assigns,
restated and reordered, that the Court of Appeals erred in (1)
finding that $333,750 of appreciation on Fertilizer Plant was
part of the marital estate, (2) finding that $129,000 of Lenard’s
Farm was marital property, (3) finding that the marital value of
Holmesville Farm was $691,500, (4) including the value of the
Home Place land as marital property, and (5) finding that all of
Grandma’s Farm was marital property.
3
Stanosheck v. Jeanette, 294 Neb. 138, 881 N.W.2d 599 (2016).
4
Stephens v. Stephens, 297 Neb. 188, 899 N.W.2d 582 (2017).
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Nebraska Supreme Court Advance Sheets
313 Nebraska Reports
PARDE V. PARDE
Cite as 313 Neb. 779IV. STANDARD OF REVIEW
[1] In a marital dissolution action, an appellate court reviews
the case de novo on the record to determine whether there has
been an abuse of discretion by the trial judge in his or her
determinations regarding custody, child support, division of
property, alimony, and attorney fees. 5
[2] In a review de novo on the record, an appellate court
is required to make independent factual determinations based
upon the record, and the court reaches its own independent
conclusions with respect to the matters at issue. 6
[3] A judicial abuse of discretion exists if the reasons or rul-
ings of a trial judge are clearly untenable, unfairly depriving a
litigant of a substantial right and denying just results in matters
submitted for disposition. 7
V. ANALYSIS
[4-6] Neb. Rev. Stat. § 42-365 (Reissue 2016) authorizes a
trial court to equitably distribute the marital estate according
to what is fair and reasonable under the circumstances. 8 In a
marital dissolution action, the purpose of a property division is
to distribute the marital assets equitably between the parties. 9
There is no mathematical formula by which property awards
can be precisely determined, but as a general rule, a spouse
should be awarded one-third to one-half of the marital estate,
the polestar being fairness and reasonableness as determined
by the facts of each case. 10
[7] Prior to our decision in Stephens, we treated separate
property as remaining nonmarital unless both of the spouses
5
Simons v. Simons, 312 Neb. 136, 978 N.W.2d 121 (2022).
6
Kauk v. Kauk, 310 Neb. 329, 966 N.W.2d 45 (2021).
7
Simons v. Simons, supra note 5.
8
Bock v. Dalbey, 283 Neb. 994, 815 N.W.2d 530 (2012).
9
See Kauk v. Kauk, supra note 6.
10
Id.- 788 -
Nebraska Supreme Court Advance Sheets
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PARDE V. PARDE
Cite as 313 Neb. 779contributed to the improvement or operation of the property
or the spouse not owning the property or not receiving the
inheritance or gift significantly cared for the property during
the marriage. 11 But in Stephens, we held that the appreciation
or income of a nonmarital asset during the marriage is mari-
tal insofar as it was caused by the efforts of either spouse or
both spouses. 12
[8] The active appreciation rule sets forth the relevant test
to determine to what extent marital efforts caused any part of
an asset’s appreciation or income. 13 Accrued investment earn-
ings or appreciation of nonmarital assets during the marriage
are presumed marital unless the party seeking the classification
of the growth as nonmarital proves: (1) The growth is read-
ily identifiable and traceable to the nonmarital portion of the
account and (2) the growth is not due to the active efforts of
either spouse. 14 Appreciation caused by marital contributions is
known as active appreciation, and it constitutes marital prop-
erty. 15 Passive appreciation is appreciation caused by separate
contributions and nonmarital forces. 16
[9,10] After Stephens, we have adhered to the frame-
work that any given property can constitute a mixture of
marital and nonmarital interests; a portion of an asset can
be marital property while another portion can be separate
property. 17 The original value of an asset may be nonmarital,
11
See Van Newkirk v. Van Newkirk, 212 Neb. 730, 325 N.W.2d 832 (1982),
abrogated, Stephens v. Stephens, supra note 4.
12
Stephens v. Stephens, supra note 4.
13
White v. White, 304 Neb. 945, 937 N.W.2d 838 (2020).
14
Id.15
Id.16
Id.17
See, Simons v. Simons, supra note 5; Kauk v. Kauk, supra note 6; Higgins
v. Currier, 307 Neb. 748, 950 N.W.2d 631 (2020); White v. White, supra
note 13; Marshall v. Marshall, 298 Neb. 1, 902 N.W.2d 223 (2017).
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Nebraska Supreme Court Advance Sheets
313 Nebraska Reports
PARDE V. PARDE
Cite as 313 Neb. 779while all or some portion of the appreciation of that asset may
be marital. 18
[11] The oft-cited three-step process of a marital prop-
erty division 19 must account for appreciation, which may be
treated separately from the original capital or value of an
asset. Thus, in a marital dissolution action, the equitable divi-
sion of property is a three-step process. The first step is to
classify the parties’ property as either marital or nonmarital,
setting aside the nonmarital property or nonmarital portion
of the property to the party who brought the property to the
marriage. The second step is to value the marital assets and
marital liabilities of the parties. And the third step is to cal-
culate and divide the net marital estate equitably between
the parties. 20
With this refined three-step process in place, we start with
the first step and turn our attention to whether the active
appreciation rule should apply to agricultural land. The Court
of Appeals cited our decisions stating that the rule applies
equally to appreciation or income during the marriage of any
nonmarital asset, 21 and it determined that the rule should apply
to farmland. We agree.
In Arlan’s supplemental brief in support of his petition for
further review, he did not contest that the active appreciation
rule should apply to agricultural land; instead, after observ-
ing that we had not directly applied the rule to farmland, he
contended that the Court of Appeals should have remanded the
cause to provide him an opportunity to satisfy the two-prong
test from Stephens. At oral argument, however, he backed
away and contended that agricultural land should be treated
differently, using “common sense.”
18
See Stephens v. Stephens, supra note 4.
19
See, e.g., Kauk v. Kauk, supra note 6.
20
See id.21
See, White v. White, supra note 13; Stephens v. Stephens, supra note 4.
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Nebraska Supreme Court Advance Sheets
313 Nebraska Reports
PARDE V. PARDE
Cite as 313 Neb. 779But the need for an evidentiary link between the apprecia-
tion and its cause is no surprise. Although the rule’s applica-
tion to agricultural land may have been novel, the rule itself
was not.
The underlying concept of the active appreciation rule is
not new. Forty years ago, an annotation in the American Law
Reports stated that courts in most cases had recognized that an
increase in value of a spouse’s separate property—unattribut-
able to funds, property, or effort by either spouse—constituted
separate property. 22
By the time of the trial in 2021, we had spoken on a num-
ber of occasions about how appreciation on a nonmarital asset
should be treated. In 2015, we examined to what extent the
appreciation in a separate premarital portion of a retire­ment
account was caused by the efforts of either spouse. 23 The next
year, we set forth the two-prong test discussed above with
respect to investment earnings accrued during the marriage on
a nonmarital portion of a retirement account. 24 In 2017, when
we decided Stephens, we held that “the principles set forth
in Stanosheck apply equally to appreciation or income during
the marriage of any nonmarital asset.” 25 We did not carve out
any exceptions.
Two decisions in 2020 further addressed the active apprecia-
tion rule and the need for evidence regarding causation. 26 In
one, we discussed in detail our case law and that of three other
states concerning active appreciation and stated that “[w]e
adhere to the active appreciation rule articulated in Stephens.” 27
Notably, in both of the 2020 decisions, we cited the lack
22
Annot., 24 A.L.R.4th 453 (1983).
23
Coufal v. Coufal, 291 Neb. 378, 866 N.W.2d 74 (2015).
24
See Stanosheck v. Jeanette, supra note 3.
25
Stephens v. Stephens, supra note 4, 297 Neb. at 205, 899 N.W.2d at 595.
26
See, Higgins v. Currier, supra note 17; White v. White, supra note 13.
27
White v. White, supra note 13, 304 Neb. at 960, 937 N.W.2d at 850.
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PARDE V. PARDE
Cite as 313 Neb. 779of evidence to show that the increase in value resulted from
something other than the active efforts of either spouse.
To find active appreciation in nonmarital property, a trea-
tise described three determinations that a court must make. 28
First, the court must find that the nonmarital property in
question appreciated during the marriage. 29 Second, the court
must find that the parties made marital contributions to the
property. 30 Third, the court must find a causal connection
between the marital contributions and at least part of the
appreciation. 31 This is generally consistent with our two-
prong test which presumes the appreciation of a nonmarital
asset during the marriage is marital unless the party seeking
to classify the growth as nonmarital proves: (1) The growth is
readily identifiable and traceable to the nonmarital portion of
the account and (2) the growth is not due to the active efforts
of either spouse. 32
[12] Some assets are more subject to active appreciation,
while others are more subject to passive appreciation. 33 By its
nature, real estate is more prone to passive appreciation. 34 This
is because real estate tends to rise and fall in value for reasons
beyond the parties’ control. 35 However, a Tennessee court, in
discussing a farming operation, stated:
We have no doubt that the continued profitability of a
farm operation serves to increase the land’s value, par-
ticularly where the only apparent use of the land is farm-
ing. The routine advance of expenses for the farming
28
See 1 Brett R. Turner, Equitable Distribution of Property § 5:56 (4th ed.
2021).
29
See id.
30
See id.
31
Id.
32
See White v. White, supra note 13.
33
See 1 Turner, supra note 28, § 5:57.
34
See id.
35
See id.
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PARDE V. PARDE
Cite as 313 Neb. 779operation is, in our opinion, a real and substantial con-
tribution made through the use of the [parties’] mari-
tal funds. 36
The treatise cautions that “while it is wrong to make a blanket
assumption that all appreciation in real estate is passive . . . ,
the nature of the asset nevertheless is a significant factor in
accurately determining the cause of any increase in value.” 37
Ultimately, whether appreciation in real estate is active or
passive depends on the facts and circumstances of each case.
In that regard, evidence relating to the cause of appreciation
is key.
[13] The burden is on the owning spouse to prove the extent
to which marital contributions did not cause the appreciation
or income. 38 With respect to the evidentiary burden, the trea-
tise explained why placing the burden of proof on the own-
ing spouse was the better policy. 39 To start, it is consistent
with the general rule that the burden of proof rests with the
party claiming that property is nonmarital. 40 Further, it places
the burden of proof upon the spouse who, as the owner of the
property, has the best access to the relevant evidence. 41 Doing
so helps to curtail abuses of the discovery process by owning
spouses, who are sometimes reluctant or unwilling to comply
with discovery. 42
With these principles in mind, we separately discuss the
five parcels of property at issue, setting forth the Court of
Appeals’ determinations before making our own indepen-
dent conclusions.
36
Fickle v. Fickle, 287 S.W.3d 723, 730-31 (Tenn. App. 2008).
37
1 Turner, supra note 28, § 5:57 at 946.
38
White v. White, supra note 13.
39
See 1 Turner, supra note 28.
40
See, id.; White v. White, supra note 13.
41
See 1 Turner, supra note 28.
42
See id.
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PARDE V. PARDE
Cite as 313 Neb. 7791. Fertilizer Plant
At the time of marriage, Arlan valued Fertilizer Plant at
$70,000. At the time of the parties’ separation, it was worth
$403,750. The Court of Appeals determined that the apprecia-
tion on Fertilizer Plant, amounting to $333,750, was marital
property. We agree.
Arlan satisfied the first part of the two-prong test. There is
no dispute that the growth in Fertilizer Plant was readily iden-
tifiable to Arlan’s premarital land.
Arlan failed to carry his burden regarding the second prong
of the test. The record contains no evidence regarding the
cause of the appreciation. Arlan asserts in his petition for fur-
ther review that the value increased due to market forces and
not due to the active efforts of either spouse. But he provided
no testimony or other evidence to support that assertion at trial.
The burden of proof on Arlan was not insurmountable. For
example, evidence that values of similar property in the same
area had increased by a particular percentage during the mar-
riage or evidence that the parties left the land untouched over
the course of the marriage would have provided the district
court with a basis to treat the appreciation as nonmarital. But
because nothing in the record explains the increase in value,
we agree with the Court of Appeals that the district court
abused its discretion by treating the appreciation on this prop-
erty as nonmarital property.
2. Lenard’s Farm
The record shows that at the time of marriage, Lenard’s
Farm had a value of $64,000 and that Arlan owed $40,000
on a note for the land’s purchase. By the time of separation,
Lenard’s Farm was valued at $153,000. The Court of Appeals
determined that Arlan was entitled to a setoff for $24,000,
representing the equity he had in Lenard’s Farm at the time
of marriage, and that the remaining value of $129,000 was
marital property. Thus, it concluded that the district court
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Cite as 313 Neb. 779abused its discretion by including a marital value of $40,000
for Lenard’s Farm.
[14] The equity in property at the time of marriage is a
nonmarital asset which, if established, should be set aside as
separate property. 43 Thus, $24,000 of the value of Lenard’s
Farm should be set off to Arlan as nonmarital property.
Because the record contains no evidence regarding the cause
of the increase in value of the land, there is nothing to rebut
the presumption that the appreciation in Lenard’s Farm was
marital. Accordingly, we agree with the Court of Appeals
that the district court abused its discretion in determining that
$40,000 of Lenard’s Farm, rather than $129,000, was mari-
tal property.
3. Holmesville Farm
The Court of Appeals recognized that although Holmesville
Farm was purchased during the marriage, part of the purchase
entailed an exchange involving Arlan’s premarital property.
The Court of Appeals reasoned that Arlan was entitled to a
set off of $42,500 due to the sale of Rademacher Farm, which
was Arlan’s nonmarital property. Because Holmesville Farm
was valued at $734,000 at the time of separation, the Court
of Appeals determined that the marital value was $691,500. It
concluded that the district court abused its discretion in clas-
sifying only $286,260 as marital property.
Relying on Shafer v. Shafer, 44 Arlan contends that the mari-
tal value of Holmesville Farm should be reduced by 61 per-
cent to account for the nonmarital property used to acquire
it. Shafer, a Court of Appeals’ decision, was decided 10 years
prior to Stephens. Even though we had not yet announced the
active appreciation rule, the trial court in Shafer made findings
related to the rule, reasoning:
43
See Onstot v. Onstot, 298 Neb. 897, 906 N.W.2d 300 (2018).
44
Shafer v. Shafer, supra note 2.
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Cite as 313 Neb. 779“There is no evidence of any substantial improvements
to the land after its acquisition and it further appears
that the appreciation in value of the land from the 1992
value of $150,000.00 to the present value of $260,500.00
is due to market forces and circumstances separate from
any improvements made to the property by the parties.
Upon consideration of the evidence, the court finds that
[the wife] has established that 45.33% of the current
value of the 160 acres . . . is attributed to her inheritance
and that such value should be set aside as her sole and
separate property and the same is excluded from the mari-
tal estate.” 45
In finding no abuse of discretion, the Court of Appeals noted
the absence of evidence to show that the appreciation in
value was the result of any substantial improvement or the
nonowning spouse’s farming and care of the property dur-
ing the marriage. In Stephens, “[w]e expressly adopt[ed] the
active appreciation rule that does not distinguish between
the efforts of the owning spouse and the efforts of the non-
owning spouse.” 46 We disapprove of Shafer to the extent it is
inconsistent with Stephens.
Here, Arlan failed to meet his burden with respect to the
considerable appreciation in value of Holmesville Farm. The
record is devoid of evidence that the increase was due to mar-
ket forces and not due to the active efforts of either spouse.
Accordingly, we agree with the Court of Appeals that the
marital value was $691,500 and that the district court abused
its discretion in classifying only $286,260 as marital property.
4. Home Place
In 2002, the parties built their marital home upon 5 acres
of Arlan’s premarital land. The Court of Appeals determined
that Home Place was marital property. It reasoned that the
45
Id. at 173-74, 741 N.W.2d at 176.
46
Stephens v. Stephens, supra note 4, 297 Neb. at 206, 899 N.W.2d at 595.
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Cite as 313 Neb. 779value of the land could not be separated from the structure and
cited a case 47 regarding commingling of separate property with
marital property. We agree with the Court of Appeals’ conclu-
sion, though perhaps not its reasoning.
The Home Place land is 5 acres of land that was part of
Fertilizer Plant. As discussed above, Arlan valued Fertilizer
Plant at $70,000 at the time of marriage. In the Court of
Appeals’ division of property, it set off $70,000 of Fertilizer
Plant to Arlan as his nonmarital property. Thus, he has already
received credit for the premarital value of the land that is now
known as Home Place.
At the time of trial, the parties agreed that the 5 acres of
Home Place land had a value of $25,000. But Arlan’s attempt
to receive credit for the appreciation in value of the land fails.
He did not meet his burden to show that any appreciation in
value was not due to the active efforts of one or both of the
parties. Accordingly, we agree with the Court of Appeals that
the district court abused its discretion in setting off to Arlan
$25,000 of Home Place as nonmarital property.
5. Grandma’s Farm
The Court of Appeals stated that the record showed the par-
ties financed the full $80,296 for the purchase of Grandma’s
Farm and did not show that the $20,000 gift from Arlan’s
mother was used to purchase the property or was used as a pay-
ment on the loan. The Court of Appeals determined that Arlan
failed to meet his burden of proof, that the entire $236,000
value of Grandma’s Farm was marital property, and that the
district court abused its discretion in classifying 25 percent of
Grandma’s Farm as nonmarital property.
[15] Gifts and inheritances, even when received during
the marriage, are presumed to be nonmarital. 48 The parties
47
Osantowski v. Osantowski, 298 Neb. 339, 904 N.W.2d 251 (2017).
48
Burgardt v. Burgardt, 304 Neb. 356, 934 N.W.2d 488 (2019).
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Cite as 313 Neb. 779agree that Arlan’s mother gave each of her four children
$20,000 after Arlan and Cindy purchased this property from
Arlan’s mother for $80,000. They dispute whether it was an
inheritance to Arlan or a gift to both parties.
[16] When evidence is in conflict, the appellate court con-
siders and may give weight to the fact that the trial court heard
and observed the witnesses and accepted one version of the
facts rather than another. 49 The district court found that Arlan’s
mother “gifted back” to Arlan $20,000 and that he should
receive credit for that gift. Given the conflicting evidence, we
cannot say that this finding was clearly untenable.
But the district court did more than merely set off $20,000
to Arlan. By treating the $20,000 gift as 25 percent of the
property’s purchase price, the district court essentially turned
the $20,000 gift into a $59,000 set off. It abused its discretion
in doing so.
We conclude that $20,000 of the $236,000 value of
Grandma’s Farm should be set off to Arlan. Accordingly,
$216,000 of Grandma’s Farm is marital property.
6. Resolution
Upon further review, we conclude that the proper marital
and nonmarital values of the property at issue are as follows:
Property Marital Value Arlan’s Nonmarital
Fertilizer Plant $333,750 $70,000
Lenard’s Farm 129,000 24,000
Holmesville Farm 691,500 42,500
Home Place 385,000 0
Grandma’s Farm 216,000 20,000
We affirm the Court of Appeals’ determination as so modi-
fied. We remand the cause to the Court of Appeals and direct
that it remand to the district court for an equitable division of
the marital estate using the above classifications.
49
White v. White, supra note 13.
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Cite as 313 Neb. 779VI. CONCLUSION
The Court of Appeals properly applied the active apprecia-
tion rule to agricultural land. Because Arlan failed to show that
the land’s appreciation was not caused by the active efforts
of either party, we affirm the Court of Appeals’ determination
that the appreciation on Fertilizer Plant, Lenard’s Farm, and
Holmesville Farm was part of the marital estate. We further
agree that the entirety of Home Place is marital property. But
we cannot say that the district abused its discretion in finding
that Arlan’s mother made a $20,000 gift in connection with the
purchase of Grandma’s Farm.
We affirm the Court of Appeals’ decision as modified to
decrease the marital value of Grandma’s Farm determined by
the Court of Appeals by $20,000. We remand the cause to the
Court of Appeals with directions to remand to the district court
for an equitable division of the marital estate using marital val-
ues determined in this decision.
Affirmed as modified, and cause
remanded with directions.