Inherited homes can quickly become very complicated during a divorce. What starts as your separate property might turn into a shared marital asset. Understanding how this happens is crucial to protecting what is rightfully yours.
What Makes Inherited Property “Separate”?
Initial Status: An inherited home is typically considered separate property. This means it belongs only to the person who inherited it, not to both spouses.
Protection in Divorce: If kept entirely separate, an inherited home might be fully protected in a divorce. However, actions taken during the marriage can change this status.
- Inherited before marriage.
- Received as a gift to one spouse.
- Not mixed with marital assets.
- Belongs only to one spouse.
- Generally not split in divorce.
- Requires careful handling to maintain status.
Example Scenario: Imagine a husband inherited a home years before marriage. If he never lived in it with his spouse, never refinanced it, and never spent marital money on it, the home would likely remain his separate property in a divorce.
When Does an Inherited Home Become Marital Property?
The Commingling Problem: An inherited home can become marital property if it is “commingled” into the shared marital estate. This means mixing separate property with marital property.
Heavy Arguments: Once commingled, it becomes much harder to argue the home is still entirely separate. The spouse who did not inherit it can claim a right to its value.
- Refinancing the property.
- Adding a spouse to the title.
- Using joint funds for improvements.
- Mixing separate and shared assets.
- Creates a gift to the marriage.
- Often results in shared ownership claims.
Example Scenario: A couple lives in an inherited home for eight years. During this time, they treat it like any other shared asset. This long period of shared living can blur the lines of ownership.
How Does Refinancing Affect an Inherited Home?
Taking Out a Mortgage: Refinancing an inherited home often involves taking out a mortgage or equity line. Even if the original house had no debt, adding a new loan changes things.
Marital Debt Implication: If the funds from the refinance are used for marital purposes, like family vacations or children’s expenses, the home can become intertwined with the marriage.
- Taking out an equity line.
- Obtaining a small mortgage.
- Using funds for family needs.
- Creates a joint financial obligation.
- Introduces shared debt to the property.
- Can reduce the separate property argument.
Example Scenario: A wife inherits a debt-free $300,000 house. She and her husband decide to take out a $50,000 equity line to send their kids to camp. This financial decision directly connects the home to marital assets.
What Happens When You Put Both Names on the Title?
Legal Gift to Marriage: When you refinance an inherited home, banks often require both spouses to sign. This can lead to putting both names on the house title.
Loss of Control: Once both names are on the title, the inherited home legally becomes a gift to the marriage. This makes it difficult to claim it as separate property during a divorce.
- Banks often require joint signatures.
- Adds spouse’s name to the deed.
- Creates shared legal ownership.
- Turns separate property into marital.
- Opens door for division in divorce.
- Can lead to losing half the equity.
Example Scenario: A husband inherited a home. When he refinances it to get cash, the bank makes both him and his wife sign the loan papers. Their names both go on the title, making it a shared asset.
Can Renovations Make an Inherited Home Marital Property?
Using Marital Assets: Even without refinancing, using shared marital money to renovate an inherited home can commingle it. This applies to major upgrades and small fixes.
Increased Value: If the value of the home goes up because of these renovations, the non-inheriting spouse can argue they are entitled to a share of that increased value. They contributed to it.
- New kitchen installation.
- Upgrading bathrooms with new tiles.
- General modernization using shared funds.
- Active marital assets are spent.
- Spouse’s money and effort involved.
- Increases the home’s market value.
Example Scenario: A wife inherited a house with a 1950s style. She and her husband decided to completely renovate it using money from their joint bank account. This renovation added significant value to the property.
Why Do Marital Funds for Renovations Matter?
Shared Contribution: When marital money is used for renovations, both spouses are seen as contributing to the home’s value. This includes personal effort and financial contributions.
Fairness Argument: The non-inheriting spouse can argue it is unfair for the other spouse to keep 100% of a home they helped improve. Their money and effort increased its worth.
- Money from joint income.
- Financial contributions from both jobs.
- Effort put in by both parties.
- Adds to the home’s value.
- Creates a claim of shared investment.
- Makes asset division murky.
Example Scenario: A husband inherited a home, but his wife helped plan and pay for a new roof, kitchen cabinets, and updated landscaping using funds from their joint savings. She can claim she invested in the property.
How Can You Protect an Inherited Home from Divorce?
Keep it Separate: The best way to protect an inherited home is to keep it completely separate from the marital estate. Do not mix it with shared finances or put a spouse on the title.
Avoid Commingling: This means avoiding any actions that blend the inherited property with marital assets. Maintain clear boundaries for its ownership and use.
- Do not refinance with a spouse.
- Do not add a spouse to the title.
- Do not use marital funds for improvements.
- Maintain sole ownership documents.
- Keep separate accounts for any related costs.
- Consult a lawyer for specific advice.
Example Scenario: To protect an inherited vacation home, a husband ensures he never adds his wife to the deed. He also uses a separate bank account he had before marriage to pay for any maintenance or taxes on the property.
What if You Sell the Inherited Property?
Keeping Cash Funds Separate: If you sell an inherited property, you can protect the generated cash funds. The key is to keep this money strictly separate from any joint marital accounts.
Reduced Legal Risk: By selling the property and maintaining separate cash funds, the legal risk of someone claiming it was commingled into the marriage is greatly reduced.
- Sell the property within the estate.
- Deposit funds into a personal account.
- Do not transfer to joint accounts.
- Funds remain separate property.
- Easier to prove individual ownership.
- Minimizes commingling claims.
Example Scenario: A woman inherits a house and sells it. She deposits all the money into an individual savings account she opened before marriage, never transferring any part of it to her joint checking account with her husband.
Crucial Takeaways for Inherited Property
The exact moment you start putting an inherited asset, or its underlying value, into your joint marital accounts, you begin to lose control. What was once clearly yours can quickly become something your spouse has a claim to. Being extremely careful and deliberate with inherited property is the only way to safeguard it.
Protecting inherited real estate during a divorce requires proactive steps long before any marital issues arise. Once an inherited home is commingled, it becomes difficult to undo. Always prioritize keeping these assets distinct and separate to avoid losing significant equity in a divorce.
Frequently Asked Questions About Inherited Property and Divorce
1. Can an inherited home ever be considered a marital home?
Yes, if the inherited home is lived in by the couple for many years or actively commingled with marital assets, it can be argued as a marital home.
2. What does “commingling” mean for inherited property?
Commingling means mixing separate property, like an inherited home, directly into the shared marital estate, making it part of the joint assets.
3. Is refinancing an inherited home a way to commingle it?
Yes, refinancing an inherited home, especially if it leads to putting both names on the title, is a definitive way to commingle it.
4. If I take out an equity line on an inherited home, does it become marital property?
It can, especially if both spouses sign for the loan and the funds are used for marital purposes, making it heavily arguable as marital property.
5. Why is putting my spouse’s name on the title of my inherited home a problem?
Once both names are on the title, it legally acts as a gift to the marriage, potentially allowing your spouse to claim half of the home’s equity in a divorce.
6. Can renovations paid for with marital money change an inherited home’s status?
Yes, spending active marital assets on renovating an inherited home can commingle it, as the increased value now involves joint contributions.
7. What if my spouse helped with their personal effort in renovating an inherited home?
Their personal effort, combined with marital funds, strengthens their claim that the home’s value increase is due to their contribution, making it part of the marital estate.
8. What is the best way to protect an inherited home?
The absolute best thing to do is to keep the inherited home entirely separate from all marital finances and assets throughout the marriage.
9. Should I sell an inherited property to protect the asset?
Selling the property and keeping the generated cash funds strictly separate in an individual account is a strong way to protect the asset from commingling claims.
10. When do I start losing control over an inherited asset as separate property?
You start losing control the exact moment you begin putting the asset, or its underlying value, into your joint marital accounts.
11. Are there specific title issues with commingled inherited homes?
Yes, once an inherited home is comminggled, there can be major title issues and heavy mortgage complications during a divorce.
12. What if we lived in the inherited home for many years without refinancing?
Even without refinancing, if you lived in it together for seven or eight years and used marital funds for renovations, it can become regarded as a marital home.
Need help protecting your inherited assets during a divorce? Contact Goldman Law today for expert legal guidance.
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