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How does sweat equity relate to divorce?

On Behalf of | May 19, 2020 | Divorce

You may own a piece of real estate or a business that you consider solely yours and not something your spouse has a stake in. If you should divorce your spouse, you might find a court considers your separate property to actually be marital property. This can happen if your spouse put any kind of sweat equity into a piece of property you own. 

Your spouse does not actually have to invest money in a piece of property you own to have a claim to some of its value. If your spouse helps increase the value of your separate property through sweat equity, you spouse may own a share of the property value. 

Defining sweat equity 

Bankrate describes sweat equity as the amount of work a person performs to increase the value of a property. In the case of real estate, you may contribute sweat equity by painting an old wall, putting in new landscaping, or installing new windows. A person can also add sweat equity to a business by improving the business property or contributing to duties at the business. 

One way to illustrate the value of sweat equity is to look at how sweat equity helps people who flip houses make a profit. You may buy a house for a certain amount of money, put in work on the house, and sell the home for a higher price. The difference between the price you earned from the sale and the price you bought the home for demonstrates how your sweat equity increased the value of the home. 

Sweat equity and divorce 

Sweat equity can become a problem if you divorce your spouse and it turns out your spouse had put in some sweat equity into a property that you own. If your spouse performed some work or improvement into your property or business, your spouse can lay some claim to the value added to the property. 

Some couples work out issues like this in advance with a prenuptial or postnuptial agreement. However, if you do not have either of these documents, you may need to work out a division of equity with your spouse if a court decides your spouse has a valid claim to some of the value of your property.