Dear Penny: Dad Built a Casita in Our Backyard. What Happens if My Husband and I Divorce?

A casita sits in a backyard.
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Dear Penny,

My elderly father moved in with my husband, me and our two kids. Because our home was too small to house us all and we have a big backyard, my father asked to build a separate dwelling casita in our yard. My dad paid for it all and said that it was my inheritance.

The total cost to build was $120,000. If my husband and I were to divorce, would the entire proceeds be split equally or will I be solely entitled to $120,000 in addition to my half of our home sale since it is my inheritance?

Thank you,

— Married with Property

Dear Married,

The most important question is: Who owns the casita?

If you and your husband are equal owners in the property that includes both your house and the new casita, you would most likely need to negotiate a split of that asset in a divorce.

Divorcing couples handle property splits in a lot of different ways: One of you might move out, and the other would have to buy out your half of the equity in the property and become the sole owner. You might both move out, sell the property and split the proceeds. You might both move out but maintain shared ownership of the property and split any revenue you earn from it (e.g. renting it out). Because you have two structures on the property, you might each take sole ownership of one (if splitting the lot is possible where you live).

If you live in one of nine community property states in the U.S., the value of all co-owned assets would be split equally between you and your husband. If you live in another state, you can negotiate the ratio of the split as part of the divorce settlement. If you’re in a community property state and you and your husband own the property equally, you’ll likely have to split the entire thing, including the value of the new casita, evenly.

If you’re not in a community property state, you might be able to negotiate for that $120,000. You’ll have a better chance of doing so if you have some kind of documentation that your father meant for it to be your inheritance, but that’s no guarantee. A divorce attorney can help you sort through these questions and consider the best way to negotiate a split of your assets.

If your father owns the casita property himself, none of this is an issue. He can leave it to you or sell it anytime and leave you the proceeds as an inheritance.

Regardless of what happens with the property, understand that putting $120,000 into building something doesn’t mean you’ll get $120,000 of value out of it.

Now that the casita has been built, its value is based on how much someone will pay to buy it. Depending on when you built it, that’s likely to be more than $120,000, so keep that in mind as you consider how you might split assets, as well.

Dana Miranda is a Certified Educator in Personal Finance®, author, speaker and personal finance journalist. She writes Healthy Rich, a newsletter about how capitalism impacts the ways we think, teach and talk about money.