Does a Spouse Get Increased Value in an Inherited Home in Divorce?

By Beverly Bird

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There are few black-and-white answers when it comes to inherited property in divorce. An inherited asset starts out belonging solely to the spouse who received it, and it may remain that way – or it may not. It depends on what you do with it between the date you receive it and the time your marriage ends. If it appreciates in value, this is an additional factor the court must consider -- the question becomes why its value went up. Depending on the answer, the increase might be yours, or you might have to share it with your spouse.

Inherited Property

Inheritances are a spouse's separate property unless the bequest was specifically made to both of you. As your separate property, it's not subject to division in a divorce. The basic rule is that your spouse has no right to a share, but a lot of complicating factors come into play to muddy the legal waters, and the situation isn't always clearcut. If your ex argues that the home is not your separate property, you have the burden of proof in court to establish that she's wrong.

Commingling and Transmutation

Separate property can become commingled with or changed into marital property, and if that happens, the court will divide it between you and your spouse if you divorce. This might happen for an obvious reason, such as if you retitle the property into joint names after you receive it. The courts in most states will assume you did so with the intention of converting the asset to marital property. Commingling and transmutation can also happen in far more subtle ways, and you might not even realize what you've done until it's too late. If you use marital money to pay for the home's upkeep, you've commingled a marital asset – your income – with your separate property. If you and your spouse live in your inherited home and make it your marital residence, your spouse may acquire a stake in its value.

Increases in Value

Even if you didn't commingle or transmute your inheritance, you might still have to share a portion of it in a divorce if it increases in value during the term of your marriage through appreciation. Some states treat the additional value as marital property. Generally, however, this only occurs if the appreciation was due to some action taken by one or both of you, such as if you added a sunroom – this is active appreciation. If it increased in value due to market conditions or inflation, this is passive appreciation, and you would generally not have to share the increased value if you kept the inherited property totally separate during your marriage.

Equitable Distribution vs. Community Property

If the court determines that the home is marital property – or even that a portion of it is – the next question becomes how the value is divided between you. This depends on whether you live in an equitable distribution state or a community property state. In community property states, you and your spouse equally own all marital assets, so they're typically divided down the middle in divorce. In equitable distribution states, judges have more discretion to divide assets unevenly. The court might find that your spouse contributed to the appreciation, but just a little, so the judge might award her a small portion of the increase in value, not 50 percent. Equitable distribution is based on the concept of fairness, and it would not be fair to give her a full half of the increase if her contributions were relatively insignificant. Even if the court finds that you commingled or transmuted your inheritance in some way, it's possible that the judge would not award your spouse a full half of the property's value in an equitable distribution state. A factor judges often consider is which spouse contributed to the acquisition of the asset. In cases of inherited property, this is obviously you, so it's possible you could receive the bulk of its value.