Four years ago, I inherited $246,000 from my mother’s estate. I had always promised her that I would pay off my mortgage when she passed. My husband and I jointly own our home and have both equally contributed to the mortgage and household bills for the past 23 years.
Both of our names are on the deed. After my mother passed away, I paid off the balance of about $142,000 on our mortgage. If we divorce, would I be entitled to the money I put in from my inheritance? The home is currently worth about $450,000.
The Wife
Dear Wife,
You should keep the rest of your inheritance in a separate bank account. Inheritances are generally considered separate property under the law. But that changes if you were, for example, to deposit your inheritance into a joint account with your husband or, as you have done here, pay off the mortgage on your home — a jointly held asset — with funds from your mother’s estate.
The bad news: If you thought there was even an outside chance that you and your husband might get divorced, it would have been better to keep your inheritance separate from your marital property. By using a portion of your mother’s inheritance to pay off this mortgage, you have very likely commingled that part of your mother’s inheritance.
If you divorce, your house would probably be split 50/50. There are occasions when people can make a case to a divorce court that they should get more than half, but from your own retelling, it seems that you made this contribution voluntarily. In most cases when there is a dispute over whether an asset is marital or separate property, the burden of proof lies with the party attempting to prove it was a nonmarital asset.
I asked Matheu Nunn, a divorce lawyer and partner at Einhorn Barbarito in Denville, N.J., about your dilemma, and he agrees that you have likely commingled your inheritance. “Unfortunately, in a long-term marriage in which both parties have equally contributed to the home, and you decided to use inherited money to further pay-down the mortgage, a judge would likely conclude that the entirety of the equity is marital.”
There is, however, a caveat. “If your husband were to file for divorce a short time after your generous contribution, a judge may find that it is ‘inequitable’ or unfair to give your husband the entire benefit of the $142,000 of inherited money.” That assumes that you do not have a premarital agreement on how inherited money would be compensated in the event of a divorce. (He is speaking in his capacity as an attorney in New Jersey, an equitable-distribution state.)
Inadvertently commingling marital assets
There are also other considerations when deciding whether to use money to pay off a mortgage, whether it’s an inheritance or any other kind of windfall. Say you have a mortgage with a 2.5% interest rate. You could decide that you’re better off investing that money in stocks over the next 15 or so years, or placing some of it into a high-yield savings account or certificate of deposit with a 5% interest rate.
I often receive letters from people who inadvertently or otherwise commingle assets, changing those assets from separate to marital via a process called transmutation. This man, for example, met his wife in 2019, and they married in 2020. He willingly put her name on the deed of his $1 million California home, but three years later he wants a divorce. The house would be split 50/50.
Distinguishing marital from separate property is not always simple. A property purchased during a marriage with only one person’s name on the deed, for instance, will typically — but not always — be regarded as marital property. As Nunn suggested, it will ultimately depend on the laws of the state, and on whether the couple lives in a community-property or equitable-distribution state.
Under community-property laws, anything acquired during a marriage belongs to both parties. With equitable-distribution laws, property is divided fairly, if not equally. The accumulation of marital property typically ends if one or both parties file for divorce. People sometimes make amendments to prenuptial agreements to ensure property remains separate.
Obviously, you should consult a divorce attorney. But if you feel like you are headed for Splitsville, it appears that you will only walk away with $104,000 — the remainder of your mother’s inheritance — and $225,000 from your $450,000 family home. The ideal outcome would be for you both to work out any marital problems and live happily ever after. But life often has different ideas.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
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Previous columns by Quentin Fottrell:
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I’m a 61-year-old single librarian and ‘proud’ Democrat from Maine. Should I move to Florida like Jeff Bezos?
I cosigned my boyfriend’s mortgage, but I’m not on the deed. I didn’t want to marry again after a costly divorce. How do I protect myself?
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