## Facts

- Patricia Sue Woosnam owned a house on Surrey Drive before marrying Kenneth Ray Woosnam on April 17, 1970; the property was encumbered by a mortgage.
- The parties lived in the Surrey Drive house during the marriage.
- About six years later, the Surrey Drive house was sold, the mortgage and expenses were paid, and the net proceeds were reinvested in a second house on Carriage Drive purchased during the marriage.
- The parties lived in the Carriage Drive house until their separation on January 25, 1978.
- The trial court found a fair market value for the Surrey Drive property at marriage and for the Carriage Drive property shortly after separation, and attempted to compute Patricia’s nonmarital share using a percentage derived from her premarital equity.
- The trial court ordered the Carriage Drive house sold, applied sale proceeds first to Patricia’s nonmarital claim as calculated, and divided the remaining equity equally as marital property.
- Although evidence showed permanent improvements to one or both properties, the trial court made no findings on the value of improvements and did not account for them in the allocation.
- Patricia appealed only the determination of the amount of nonmarital property to be restored to her under KRS 403.190.

## Issues

1. Under KRS 403.190, how should a spouse’s nonmarital interest be calculated when premarital home equity is traced into a residence acquired during marriage through reinvestment of sale proceeds?
2. Must the court distinguish passive appreciation (including inflation) from appreciation attributable to the parties’ joint efforts when classifying the increase in value of such property?
3. How should permanent improvements made during the marriage be treated in computing the nonmarital and marital components of the residences?

## Decision

- The Court of Appeals of Kentucky reversed the portion of the divorce judgment fixing the amount of Patricia’s nonmarital property and remanded for recalculation.
- The court held the trial court erred by effectively treating the appreciation of the Carriage Drive property as entirely marital without evidentiary support that it resulted from the parties’ joint efforts.
- The court held that, because the Carriage Drive purchase was funded in part by proceeds traceable to Patricia’s premarital property, the nonmarital component must be traced and restored using a proper ratio method.
- On remand, the trial court was directed to:
  - Determine Patricia’s nonmarital interest in the Surrey Drive property as of the date of its sale.
  - Determine the portion of the Carriage Drive purchase price paid with those nonmarital funds and compute the ratio of nonmarital contribution to total purchase price.
  - Deduct the value of permanent improvements (treated separately as marital) before applying the ratio.
  - Apply the ratio to the Carriage Drive property’s value at separation (excluding improvements) to identify Patricia’s nonmarital share.

## Legal Principles

- Property acquired in exchange for property owned before marriage retains its nonmarital character to the extent it is traceable to the premarital source. (KRS 403.190(2)(b))
- The increase in value of premarital property (and traceable exchanged property) is nonmarital to the extent it did not result from the parties’ joint efforts; passive appreciation, including inflationary increase, may remain nonmarital. (KRS 403.190(2)(e))
- A court must not classify all appreciation as marital absent evidence tying the increase to marital labor or marital expenditures.
- A proportional (ratio) approach is appropriate to allocate equity in an asset purchased during marriage when a definable portion of the purchase price is traced to nonmarital funds.
- Permanent improvements made during the marriage should be treated as marital property; their value should be separated from underlying property value when computing nonmarital and marital shares.

## Conclusion

The appellate court required a tracing-based ratio allocation that preserves the nonmarital portion of premarital equity reinvested into a later residence, separates passive appreciation from increases due to joint efforts, and treats permanent improvements during marriage as marital property, reversing and remanding for recalculation under KRS 403.190.


Woosnam v. Woosnam, 587 S.W.2d 262 (Ky. Ct. App. 1979)