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Family law determines share of home proceeds for divorced couples

October 14, 2001

Who gets the sale proceeds of a marital home when a couple divorces? Is the money divided equally, even though the home was acquired using property or funds inherited by one of the spouses?

Susanne Hudson of Rock Hall wrote that she and her husband bought a house 26 years ago for $60,000. Both of their names are on the deed.

She used $20,000 of her inheritance for the down payment. She and her husband now are separated. They've been working through a mediator to reach a settlement on all their assets.

The home now is valued at $175,000, and the mortgage has been paid off. Her husband contends that she should get the $20,000 down payment back plus one-half of the remaining balance of the property value. She feels she should get a return on her original $20,000 investment (one-third of the current property value) and one-half of the remaining balance.

Robert Grimes Jr. of Joppa wrote that he and his wife are going through a separation and divorce. In 1991, during the marriage, Grimes' parents gave him land adjacent to theirs. The land was deeded solely in Grimes' name, free and clear. He used the land as collateral to borrow money to build a home. The land and home subsequently were retitled in the names of both Grimes and his wife. Grimes wants to know whether he's due compensation for the land if the entire property is sold.

The answers to these questions are based on family law. Susan Terlep, an experienced attorney with a family law practice, hopes the following information will be helpful.

Property distribution

The courts in Maryland may agree with Suzanne Hudson's approach.

When a husband and wife divorce in Maryland, there is an equitable distribution of their "marital property." In order to determine what is "equitable," courts consider numerous factors, among them: the contributions, monetary and nonmonetary, to the well-being of the family; the circumstances that contributed to the estrangement of the parties; how and when specific marital property was acquired, including the effort expended by each party in accumulating the marital property; and the value of all property interests of each party.

The court may order one spouse to pay money to the other to effect an "equitable" distribution of marital property.

In Maryland, "marital property" is defined as "the property, however titled, acquired by one or both parties during the marriage."

Marital property does not include property acquired before marriage; acquired by inheritance or gift from a third party; excluded by valid agreement; or directly traceable to any of these sources.

If you and your spouse are listed on the deed to your property as "tenants by the entireties" (the most common form of titling for a husband and wife), then under Maryland law, your home is, by definition, marital property.

Net proceeds

Unless an agreement is made otherwise, when your home is sold, the net proceeds of settlement would be divided equally according to the title. Each of you, however, has an equitable argument to make that you can trace a nonmarital contribution to the acquisition of the property.

Hudson contributed her $20,000 inheritance. Grimes contributed land which he had acquired by gift from his parents. These nonmarital contributions, if documented by appropriate paperwork, would be considered by the court when making a monetary award.

In order to "trace" your non-marital contribution to the acquisition of your home, you would ask the court to use the following fraction or ratio: your total nonmarital investment over your total nonmarital investment, plus your total marital investment.

Based on the numbers that Hudson provided in her question, $20,000 would be the numerator in her fraction and the denominator would be $20,000 plus whatever marital monies were invested in the property during the marriage, for example the reduction of any mortgage loan on the property.

As you can see, the result will be a percentage that the court may apply to the equity in Hudson's home, which, in effect, would be a return on her initial investment. Similarly, Grimes' fraction would include the value of land he contributed in proportion to the total investment in the marital home.

To properly make a claim, Hudson and Grimes will need to consult with a family law practitioner and be prepared to document the initial investment of nonmarital (inherited) funds or (gifted) property. These claims then would be considered by the court along with other factors listed above in the equitable distribution analysis.

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