Common Questions Series: I used my inheritance to pay off the house. Can I get it back in the divorce?

The short answer to this question is: probably not. (At least not all of it).

This is an issue that arises very often in divorce proceedings. When couples are happily married, they often pool their money together for the good of the family as a whole. Even money that would otherwise be considered separate or “exempt” property in a divorce. (Inheritance is typically exempt). When you’re making decisions for the good of the family, rather than just yourself as an individual, you can’t take it back later if things change. So that means if you get a large inheritance and you decide to pay off all of the marital debt (i.e. debt that was accumulated during the marriage), you can’t just take it back if things don’t work out.

So what does this look like in real life? Let’s say you paid off the mortgage on the house with your inheritance. Depending how long ago that was, you may be able to claim a larger share of the equity in the house. For instance, New Jersey is an “equitable distribution” state where property is distributed “equitably” (as opposed to a “community property” state where everything is automatically split 50/50). Equitably doesn’t always mean 50/50. Even though this is often what people end up doing anyway, there is no rule that it has to be. So you could claim a more-than-half share of the equity in the house. There is also no rule about how much. It comes down to general notions of what’s fair and, quite frankly, what people just end up agreeing to at the end to get their case settled. When making these claims, you have to consider how much money you’re really arguing about and how much you’re spending in counsel fees to argue about it. It doesn’t make sense to pay your lawyer $30,000 in legal fees to get another $30,000 in equity, does it?

This evaluation is also affected by other factors, such as how long ago did you pay off the mortgage? If it was 30 years ago, you’re probably not going far with this argument. If it was yesterday, or within the past few years ago, you have a stronger argument. Also, what else has affected the equity in the house? Was it just your inheritance or did you also make improvements to the house? Sometimes the increase in value (or equity) isn’t always directly attributable to the mortgage payments. These are all things that come up in the conversation when we are trying to resolve the issue.

As you can see, this question requires a careful analysis of the particular facts and circumstances of your case. If you would like to explore this further and how the law may apply to your situation, call us to schedule a Client Vision Meeting, or you can do it right here.

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