Welcome to Divorce Academy. In today’s video Kevin explains the possibilities of getting the money back that you spent on your house in your divorce.
Hey everyone, welcome to Divorce Academy. I’m Kevin Handy and I’m one of the divorce mediators here at SnapDivorce. In today’s video, I’m going to answer your question, “Can I get money that I put into a house back in my divorce?” This is a question that comes up pretty often. Usually, a couple gets married and one member gets money from their parents, or they sell a house and they put that money into purchasing a marital house. Then when the marriage ends in divorce they say, “hey can I get that money back.” So, I am going to try and answer that question for you today, but I’m warning you it’s a little bit of a complex question, but I’m going to do my best.
So, there are a few things you need to consider from the outset. How is your house titled? And by that, I mean who’s on the deed? Are both you and your spouse on the deed? Or is it just you on the deed? Or just your spouse on the deed? The second question that you need to answer is, when did you purchase the house? Was it purchased before the marriage or during the marriage? In most cases of divorce, the house is going to have been purchased during the marriage. If that’s the case in your case it’s not going to really matter if it is jointly titled or individually titled because a house itself is going to be considered marital property. That doesn’t mean you can’t get some or all of the money you put into the house back. But it makes the analysis a little bit cleaner.
If the house was purchased before the marriage, then it’s going to be a little more difficult. You’re going to have to look at whether it was jointly titled, individually titled, and other factors, but ill discuss that a little bit later in the video. So, let’s start with the basics. You purchase a house during the marriage and don’t worry about whether its jointly or individually titled because its marital property.
There are several types of contributions that come up. The first is equity from the sale of a former residence. In a lot of cases, a couple is getting married and a lot of times one of them owned a house before the marriage. When they are getting married that person sells the house takes the equity and then the couple buys a house together. Then, the money from the former house goes into the new house. When it comes to divorce, can you get that money back? In most cases, you are going to get some or all of that money back. It will depend on a few factors like how long you’ve been married. Is the house in joint names? And I will deal with those later, but you are probably going to get some of that money back, and that’s why I put a star next to it. Any of these items with a star next to it, you’re probably going to get some or all of your money back.
The second category is premarital money. This might be money you had before the marriage, maybe in a bank account, or a retirement account – something like that. You get married and then you use some of that money as a down payment on a house, you purchase the house, etc. You’re probably going to get some or all of that money back.
The next one is money earned during the marriage. A lot of people ask about this and it surprises me because any money that you earn during a marriage is going to be marital property. People will come in and say, “Hey you know what, my spouse and I got married and I paid the mortgage the whole time during the marriage. I paid for everything for the house, it was out of the money I was earning for my job but I paid for everything, can I get that back? The answer there is going to be no. Any money earned during the marriage is marital property. It’s not yours even though you earned it. So. you’re not going to get that money back. You may get some of it back through equitable distribution but you’re not going to get it back as some sort of separate contribution. So that would just go into the pot of equitable distribution or if you live in a community property state it would be divided 50/50.
The fourth category is gifts from parents or others. That comes up a lot too. You are married, you buy a house, and someone’s parents gives money for the down payment – maybe it’s the grandparents. So, someone gives money to the couple for the down payment. In this situation, it’s going to be really fact-dependent. The question or argument that always comes up is, was it a gift to the individual or was it a gift to the married couple? The person whose parents or grandparents it is always going to say, “hey that was just a gift to me, I’d like to get that money back, we’re getting divorced.” The other spouse is going to say, “No, no, no, that was a gift to both of us. That was a wedding gift, it was a gift to help support us as a couple. It wasn’t an individual gift. So, it depends on the facts and who the court is going to believe. If it was an individual gift and that’s pretty clear then you will probably get some or all of your money back. If it’s a little unclear, it was a gift to the marriage, a gift at the wedding – a wedding gift then you are probably not going to get it back except in equitable distribution or if it’s a part of community property.
You may be a little confused as to what I’m saying. When you are dividing up marital property in a divorce, there’s the property that goes into the marital pot that gets divided up either equitably or 50/50 or in a community property state. There’s other money that’s extracted from that and you get that money back in whole, so it’s not in equitable distribution. It’s not in a community property state. So, when I say you get the money back, that money is yours set aside separately before the marital money is divided up.
The final one is inheritance. Maybe you get inheritance before the marriage, or during the marriage, and you put that into a house, you’re probably going to get some or all of that back as separate property. So, whether or not you get it back as separate property and how much you get back is going to depend on factors as well.
The next question you’re going to have to ask yourself is, (if you determined “I put in money, I should get it back, its separate property”) What did I use it for? If you used it to purchase the house as a down payment or to purchase the house outright, then the answer is yes. You are probably going to get some or all of it back. If you used it for improvements on the house, that you already own, then that question becomes a little less clear. If it’s for a major improvement that increases the equity of the house, say if you put on an addition, you’re probably going to get some or all of it back. But if you put in a minor improvement, like a swimming pool, or fence –those sorts of things, then it becomes a little less clear if you will get that money back. If you use it for regular expenses or maintenance on the house, maybe if you had some separate money sitting around and you paid the mortgage out of it occasionally, or if the washing machine broke and you bought a new washing machine out of that separate money. Those day to day expenses, you’re not going to get that money back.
If you determined that you are in the category of, “I should probably get my money back” I used it to purchase the house, or for a major improvement. The final question you have to ask yourself is how long ago did you put the money in the house? Was it recent? Or was it twenty years ago? If I was recent you are probably going to get some or all of it back. But if it was twenty years ago you’re probably not going to get any of it back. They are going to say that that money was contributed to the marriage, it’s gone. Again, if you put it in last year, then it’s a little bit different. It’s a sliding scale.
I find a rule of thumb that they use in one of the jurisdictions that I practice in to be pretty helpful. It’s called vanishing credit. They say for every year that the money has been put into the house or into the improvement, that 5% has been contributed. In other words, 5% a year will be considered contributed to the marriage. So, if you took $100,000 and put it as a down payment (this is your separate money) and you have been married for 10 years, and you multiply 5% by 10 years –you get 50%. So, the court would say that 50% is considered contributed to the marriage. $50,000 goes into the marital pot, and the other 50% is separate property, and you get it back. So that is a good rule of thumb. In other words, if you just put it in, you get it all back, and if you put it in 20 years ago you’re not getting anything back. And as you go in between those two time frames you get some or all of it back.
The last issue to consider is, was there a change in title in the marriage? Sometimes you’ll have people who own a house before the marriage, and during the marriage, they put their spouse on the deed of the property. So, it goes from individually to jointly titled. In those situations, they are going to look at how much equity you had in the house at the time you transferred the title into joint names.
Let me give you an example. Let’s say, you own the house before the marriage and you have been married for 2 or 3 years and you decide to put it in your spouse’s name. After a time you have $100,000 of equity in the house, then they are going to say that that $100,000 was contributed to the marriage. If you get divorced a couple of years later you’re probably going to get most of that 100,000 back. Then any other increase in value in the property will be put into the marital pot and divided equitably or evenly if you’re in a community property state. I know that a little complicated. So that kind of covers the situations in where the property was purchased during the marriage, or like I just said, put into a joint title during the marriage.
The other situations are, what if you have individually titled property that was purchased before the marriage? In those cases, you’re going to look at the increase in value on your property during the marriage. For example, you come into the marriage and you own your property and it has 100,000 in equity. Its individually titled and you owned it before the marriage. You don’t put it in the joint title and you continue to own it individually during the marriage. Say 10 years later, you’re getting a divorce. Now, the equity on the property is worth $200,000. So, the equity went from $100,000 to $200,000. The $100,000 in increase in equity is going to go into the marital pot, and you’re going to get back your $100,000 that you already had when you came into the marriage.
The final situation that I’m going to talk about is a house that was jointly purchased before the marriage, and this is pretty unusual. It occurs in situations where a couple has been pretty serious, they aren’t married, but they lived together and they decide to buy a house together and then they later get married. In that situation, 99% of the time, they are going to be joint 50/50 owners on the deed. If they come into the marriage and the house has 100,000 in equity and they are 50/50 owners, then they each have $50,000 in equity. Let’s say that the house goes up to $200,000 in equity, so it’s a $100,000 increase in equity. At the time of the divorce, they are each going to get their $50,000 in equity that they came into the marriage with, and then the $100,000 in increase in value is going to go into the marital pot and be divided equitably or 50/50 if you’re in a community property state. That pretty much covers if you’ll get the money back, what factors are going to be considered.
The one last thing you need to think about is to consider your local laws, rules, and customs. Every jurisdiction in the united states is going to have a slightly different law. They are going to have slightly different customs. Like I said, in jurisdictions near me they have vanishing credit, but that’s not the law, it’s just a local custom. So, you have this situation, and you’re looking to get a large amount of money back you have to talk to a lawyer and really look into the local laws in your jurisdiction. It’s going to affect whether you get the money back, and how much money you get back.
I hope this was helpful, and I look forward to seeing you next time on Divorce Academy. Thanks!
