Tuesday, September 24, 2013

Dividing Assets In Divorce: The Value of Homestead Portability

By Bridget Remington

In 2009, Florida’s Constitution was amended to allow homestead owners to transfer to a new homestead the difference between the prior homestead’s “just” (fair market) value and “assessed” value. Art. VII, §(4)(d)(1) Fla. Const. Unfortunately, the birth of “portability” coincided with the housing bubble burst, limiting the relevance of portability as just values tanked. However, two trends may rekindle interest in the value of portability: rising home values and increased divorce among baby boomers who have owned homesteads long enough to experience a substantial difference between just and assessed value.

What Is Portability?

When homestead property changes ownership, it is assessed at just value as of January 1 of the following year. It is reassessed every year, but the assessed value cannot increase by more than 3 percent of the previous year’s assessed value. § 193.155(1), Fla. Stat.  (2012). Homestead exemptions are then subtracted to reach the taxable value. The difference between just value and assessed value ― the “cap differential” ― can be ported to a new homestead. § 193.155(8).

Say Tom and Betty Babyboomer purchased their homestead in 1995 at $100,000 just value. They weathered the ups and downs of the housing market, and today the homestead’s just value is $400,000. Because of the cap, however, the assessed value is only $170,000. Tom and Betty’s cap differential is $230,000, or almost 60 percent of just value. If they were to “upgrade” to a $750,000 home, the $230,000 differential would be subtracted from the just value of the new homestead, so the assessed value would be $520,000. § 193.155(8)(a). This would be the floor for future increases to assessed value. If they “downgraded” to a $200,000 home, they would port the percentage of just value (60 percent) for an assessed value of $120,000 on the new homestead. § 193.155(8)(b).

Portability and Divorce

Divorcing spouses can divide the cap differential if they both “abandon” the homestead. An equal division is simple when the homestead is sold. But what if Betty divorces Tom and keeps the house? Abandonment does not require physical abandonment, only the filing of a notice of abandonment of homestead with the property appraiser. § 193.155(8)(g). However, her abandonment will cause the homestead to be reassessed at just value, and the differential will be applied the following assessment year. But if Tom relinquishes any claim to the differential, the transfer in ownership to Betty will not require reassessment at just value because the transfer is pursuant to a divorce. § 193.155(3)(a)(2). If Tom has no plans to establish a new homestead in the next two years, he may want this “asset” placed on Betty’s side of the marital balance sheet.

If the parties want to split the differential unequally, they must be married on the date the homestead is abandoned. § 193.155(8)(d). Therefore, notice of abandonment of homestead must be filed before final judgment is entered.

Family law attorneys should anticipate the cap differential receiving greater attention as a valuable marital asset in the upcoming years.