Are you building a house on land inherited or purchased by one spouse?

It's not uncommon for spouses to build a house together on a plot of land that one spouse owns. For example, the spouse who owns the plot may have inherited it or received it as a gift from their family. In these cases, the spouses often build a home on the plot jointly and finance it together. Such a situation is in itself unproblematic, but in the event of a financial settlement in the event of a future divorce, there is a great risk that one of the spouses will end up in a significantly worse position than the spouse who owned the plot. This is particularly true where the market value of the property has risen significantly. This was precisely the case in a judgement from the Supreme Court (Rt. 2004 p. 108). The judgement is not new, but the situation is very practical and most people are probably not aware of the possible outcome.

The starting point for the financial settlement between spouses: Equal division

When spouses separate, the property regimes «community property» and «separate property» arise. In most cases, the total assets of the spouses are divided with one half going to each spouse. However, the Marriage Act contains some exceptions to this principle. The most important exceptions are that assets that have been made the separate property of one spouse, and so-called equitable distribution claims can be excluded from the division.

Separate property values and bias claims

There are many misunderstandings about the rules on separate property. Separate property is not something that arises of its own accord, or that follows the ownership of individual items. For example, a cabin is not automatically the separate property of one spouse, even if the spouse owns the cabin. Separate property can only arise in two ways: either by agreement in a marriage contract between the spouses, or by a donor stipulating in a will or deed of gift that the gift is to be the recipient's separate property.

When it comes to division of assets, these are assets that are not separate property, but which can nevertheless be excluded from the division because the assets originate from inheritance, gifts or assets that were brought into the marriage by one spouse. Most people will probably consider it reasonable that gifts and inheritance to one spouse should not be divided in the event of a divorce. Similarly, most people will also consider it reasonable that assets that one spouse had already accumulated before the marriage was entered into should not be included in the equal division.

Levelling of the plot

In cases where one spouse owns the land, it is very likely that the question of division of the land will come up in the event of a subsequent divorce. The spouse who brought the plot into the marriage will then claim that the value of the plot should be excluded from the division. The question that then arises is what value the spouse can exclude from the division; the value of the plot at the time of the gift, or the value of the plot including the increase in value.

The value of the land has often increased significantly since the marriage was entered into. On the other hand, the actual dwelling that the spouses built together will often have decreased in value with the passage of time due to wear and tear and the like. In the aforementioned Supreme Court judgement, the Court ruled that the home itself and the plot of land were two separate assets, and the spouse who owned the plot of land was entitled to share the entire value of the land, including the increase in value.

This result means that the spouse who did not own the land is left with an asset (the home) that will almost always decrease in value, while the spouse who owns the land is left with an asset (the property) that will almost always increase in value. This means that the spouse who did not own the land will be far worse off from the financial settlement than the spouse who did not own the land.

For example, the settlement may end up like this: The value of the home at the time of the gift was 200,000, and at the time of probate the value of the land has risen to 2 million: the value of the home itself at the time of probate is also 2 million. The settlement between the spouses will then be as follows: The property's value of NOK 2 million will be divided equally between the spouses, while the entire value of the land can be excluded from the division by one spouse. The spouse who owns the land will then be left with NOK 3 million, while the spouse who did not own the land will only be left with NOK 1 million.

There is nothing inherently wrong with such a result. The most important thing is that the parties are aware of their position. This applies in particular to the spouse who does not own the property. If the spouses wish to prevent or remedy such an outcome, the situation can be regulated by means of a prenuptial agreement between the parties. For example, the spouses can agree on the value of the land to be excluded from the division (separate property).