Quick answer: The reasonable-rate-of-return (or “market-benchmark”) method calculates how much of a premarital account’s growth was passive by asking what the account would have earned if it had simply tracked the market. You grow the date-of-marriage value forward at a sourced market rate of return; that figure is the passive (non-marital) portion, and any actual value above it is the active (marital) appreciation. Florida courts have accepted this approach — in Chapman v. Chapman, 866 So. 2d 118 (Fla. 4th DCA 2004), the court subtracted the return the assets would have earned passively and treated only the excess as marital.
This is the spoke companion to the hub on calculating marital vs. non-marital appreciation. It explains the primary method in detail.
What the method does
Under §61.075(6)(a)1.b, appreciation of a non-marital asset becomes marital only to the extent it resulted from a spouse’s effort during the marriage. The reasonable-rate-of-return method translates that legal idea into a number by separating two things:
- What the market gave (passive) — the return the account would have earned by simply being invested over the same period.
- What the spouse added (active) — the return above the market, attributable to management.
The premise is that a hands-off investor would have earned roughly the market’s return; anything beyond that reflects the owner’s active labor.
The calculation, step by step
- Establish the non-marital starting value — the account’s value at (or as close as possible to) the date of marriage.
- Identify external cash flows during the marriage — deposits and withdrawals — so the comparison is apples-to-apples.
- Select a sourced market rate of return for the marriage window (see “Choosing the benchmark” below).
- Grow the starting value forward at that rate, mirroring the timing of any external flows, to produce the passive counterfactual.
- Calculate active appreciation: actual ending value − passive counterfactual = the marital portion under this method.
Illustrative example (hypothetical, no client data): A premarital brokerage account is worth $250,000 at the date of marriage and $420,000 at the valuation date, with no deposits or withdrawals. A sourced broad-market index returned 40% over the same window, so the passive counterfactual is $250,000 × 1.40 = $350,000. The active (marital) appreciation is $420,000 − $350,000 = $70,000 — the value the owner generated beyond what the market handed them. The other $100,000 of growth is passive and stays non-marital.
Choosing the benchmark — the single biggest judgment call
The benchmark rate is where this analysis is won, lost, or attacked. Two principles govern it:
- It must be sourced and disclosed, never assumed. I derive the rate from a reputable, published total-return series for the relevant period, and I show exactly where it came from. A benchmark that an expert simply asserts is the first thing opposing counsel will dismantle on cross-examination.
- The choice of index materially moves the number. A broadly diversified account is fairly compared to a broad-market index. A concentrated or sector-heavy account is a harder question: comparing it to a broad index can overstate the owner’s “skill,” while comparing it to a hot sector index can understate it. Where the account’s composition makes the right benchmark genuinely debatable, I calculate the result under more than one defensible benchmark and present the spread.
Illustrative example (hypothetical): Take the same $250,000 → $420,000 account. At a broad-index return of 40% the active appreciation is $70,000; at a tech-heavy index return of 60% the passive counterfactual rises to $400,000 and the active appreciation falls to just $20,000. Same account, same facts — the benchmark choice alone swings the marital number by $50,000. That is precisely why the benchmark must be defensible and disclosed, and why a single point estimate is misleading.
Why I present a range
Because the benchmark choice (and, to a lesser extent, the treatment of dividends as price-only vs. total return) shifts the result, a credible analysis brackets it: “the marital active appreciation is between roughly $X and $Y, depending on the benchmark,” with each endpoint sourced. A range is not a hedge — it is an honest representation of how sensitive the answer is to a contestable input, and courts and opposing experts respect it.
Strengths and limitations
Strengths: it directly isolates the owner’s contribution above the market (their “alpha”), it is grounded in accepted Florida authority, and it is favorable to the non-owner spouse whenever the account’s manager genuinely beat the market.
Limitations: it depends on a sourced benchmark, and the benchmark choice is contestable for non-diversified accounts. For that reason I typically cross-check it against a buy-and-hold counterfactual and/or direct transactional tracing, and I confirm that the activity in the account actually rose to the level of “efforts” — because if the account was merely held, even a market-beating result may be passive (see what counts as active management).
When this method is the right tool
The reasonable-rate-of-return method is my default for an actively traded account with a clear date-of-marriage value and a reliable market benchmark for the period. For accounts where corporate actions dominate, the buy-and-hold counterfactual may be more concrete; where the dispute turns on specific trades, transactional tracing may be more persuasive. Often the strongest presentation uses this method as the primary calculation with the others as cross-checks.
If you are an attorney handling a Florida divorce involving a premarital, gifted, or inherited investment account, Joey Friedman, CPA, P.A. prepares sourced, ranged active-vs-passive appreciation calculations statewide.
Related resources
- Hub: Calculating Marital vs. Non-Marital Appreciation of Investment & Retirement Accounts
- Forensic Accounting: Tracing Separate vs. Marital Assets
- Equitable Distribution Analysis in a Florida Divorce
Frequently asked questions
What is the reasonable-rate-of-return method?
It calculates the passive portion of an account’s growth by growing the date-of-marriage value forward at a sourced market rate of return; any actual value above that figure is the active, potentially marital, appreciation.
Did a Florida court approve this method?
Yes. In Chapman v. Chapman, 866 So. 2d 118 (Fla. 4th DCA 2004), the court subtracted the portion of the increase the assets would have earned by passive investing and treated only the excess as marital.
Why does the benchmark choice matter so much?
Because growing the starting value at a higher assumed market return shrinks the active (marital) portion, and a lower return enlarges it. For a concentrated account the “right” index is debatable, so the benchmark can swing the result substantially — which is why it must be sourced, disclosed, and often presented as a range.
Is the original account value ever marital?
No. The date-of-marriage value remains non-marital; only the active appreciation during the marriage can be marital under §61.075(6)(a)1.b.
By Joey N. Friedman, CPA, ABV, M.Acc, MIB — President, Joey Friedman, CPA, P.A.