Dear Cassie: I am in the process of going through a divorce. During our marriage, I inherited a home from my mother. My husband and I then moved into it and lived in it for several years. The house needed a lot of work, so we spent a lot of time and money in re-constructing the home. But since I inherited it, my husband has no claim to it, right?
Dear K.F.: The short answer is – it depends.
Generally speaking, assets that are acquired by way of inheritance are exempt from equitable distribution. If an asset is “exempt from equitable distribution,” the asset is not divided between the parties, but is retained solely by the party who inherited the property. However, there are exceptions to this general rule.
If marital funds were used to improve the value of an inherited home, then the non-inheriting spouse can argue that he or she is entitled to share in the appreciation in value of the home that resulted from those improvements. “Marital funds” includes marital savings. It also includes the incomes either party earned during the marriage. However, “marital funds” does not include other funds you inherited, such as savings accounts and investment accounts.
To be able to evaluate whether improvements to the home increased the value of the home, you would need to know what the value of the home was before the improvements, and what the value of the home is after the improvements. Generally speaking, appraisals are a good way to ascertain those values. It is generally substantial capital improvements that result in a change in value, rather than superficial modifications to a home (such as purchasing a new refrigerator, for example).
Keep in mind that only increases in value to a home that result from the active efforts of the parties during the marriage are distributable. Therefore, any increase in the value of a home due solely to market conditions (i.e., a passive increase) is not includable.
In addition, it would be relevant to know whether there is a mortgage against the inherited home. If the monthly mortgage was paid with marital funds during the marriage, then the non-inheriting spouse can argue that he or she is entitled to equitable distribution of the portion of the principal balance of the mortgage which was reduced during the marriage.
If you are dealing with the issue of equitable distribution of a home, whether it is exempt or not exempt, you should seek the advice of matrimonial counsel.
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Cassie Murphy is a divorce and family law Partner with the Law Offices of Paone, Zaleski & Murphy, with offices in Red Bank and Woodbridge.