When a person buys a home before he or she is married, this property is usually considered his or her own separate property. However, the other spouse may have a right to some of the home’s equity upon divorce despite this classification. Also, steps may have been taken so that the property is no longer considered separate and is now subject to division in the divorce action.
If the couple entered into a valid prenuptial or postnuptial agreement and this agreement specifies information about the property, the terms of the agreement will dictate how the property is divided, if at all.
Common Law Divorce
The vast majority of states use a common law system regarding property ownership. In these states, the deed, registration or other ownership document often indicates which party owns what. If both parties’ names are on the title, they each own a half interest in the property. Property that was owned prior to the marriage is usually considered separate property, along with individual gifts, inheritances, personal injury awards, property acquired in just one spouse’s name that is not used for the benefit of the other spouse and property agreed to be separate. Upon divorce, the court seeks to divide proper equitably, which means fair but not necessarily equal.
Community Property Divorce
In community property states, spouses usually own an equal interest in all property acquired during the marriage without regard to whose name the property is titled in. Also, the spouses own an equal interest in the income owned by either spouse during the marriage and an equal interest in debts incurred during the marriage. Separate property includes gifts that are made to one spouse, inheritances and property acquired before the marriage and that is maintained separately.
A home that was purchased prior to the marriage and owned by one spouse is generally considered separate property and is not subject to division. However, there are exceptions to this rule.
Increase in Value
If the value of separate property increases during the marriage, the non-owner spouse may be entitled to a portion of the increased value. This can occur when the non-owner spouse’s efforts are used to help maintain or improve the property. This can also occur if a non-owner spouse’s funds were used to pay down the mortgage or improve the property. Courts may look at whether the increase in value was due to active rather than passive appreciation. Passive appreciation occurs when the property’s increase in value has more to do with the market or the lapse in time rather than the efforts of the owner. Active appreciation involves some type of actual effort. Some states allow the non-owner to receive a portion of the passive appreciation while others split only the active appreciation. Although the non-owner spouse may be able to receive compensation for a portion of the home’s equity, he or she will usually not receive the property itself outside an agreement by the parties to do so.
Some common law states begin with the premise that the property subject to division should be divided equally unless there is cause for a different distribution. Therefore, the increased equity in the home may be subject to being divided in half between the parties. However, other states use a number of factors to determine how marital property should be divided. These factors may include the length of the marriage, the separate property of each party, the age and health of each party, the earning capacity of each party, the education and skills of each party, whether the parties have children and other obligations or other factors that can help inform the court of what constitutes an equitable distribution.
Some states also consider whether the non-owner spouse’s funds were used to refinance the house. Additionally, if the owner puts the non-owner spouse’s name on the deed, the home may then be considered marital property and subject to division.
Due to the complexity of this issue, individuals who believe that their spouse may have a stake in a premarital home may wish to consult with a family law lawyer for guidance. He or she can explain the rules that are followed in the jurisdiction where the divorce case will be held and the rights of the party. He or she may also help negotiate a fair settlement with the other party.