My Parent Will Move Into Our In-Law Cottage. What Are Her Rights If My Spouse and I Divorce?

These days, more local governments are making way for deed holders to build in-law cottages, formally known as accessory dwelling units, as additions to the home or separate structures on the same lot as the main house.  

Many of these deed holders will consider this an opportunity to add value to their homes and also to accommodate in-laws or other family members.

Say you’re married and planning for your mother to move onto your property. If you and your spouse ever separate, will your mother have rights in the home? What if your mother helped pay for the unit’s construction or has paid rent in order to fund it?

The Deed Holder Is Also the Rights Holder

The default answer is that your mother will lack the right to stay if a time comes when you no longer hold your interest in the land. This is the case even if she contributed to the structure financially.

The deed is the first document to consider. The deed to the land is yours. The owner of the land owns all permanent attachments to it. So, the accessory dwelling unit belongs to you and your spouse.

As for the funds your mother might have contributed? If that funding is documented in a legal agreement as her contribution, it will be easier to protect later than money that goes through adult children’s joint accounts.

Many couples wisely put plans in place for unexpected changes in their relationship. They also need plans in place if one or more of their parents will move onto their property. Planning includes careful record-keeping. You’ll want to keep a file with all the receipts and records of money transfers.

Accessory dwelling units are becoming a major part of the “gentle density” movement to create financially accessible homes for seniors and families. In California and Vermont, to take just two examples, local governments permit ADUs statewide.

Consider a Legal Agreement Before Planning the ADU

Get a lawyer involved and draft a legal agreement to protect your relative if you’re planning to build a unit for them on your property. It’s well worth the time to do this because:

• If you pass away during your marriage and your spouse receives the deed to the marital property, your parent’s rights to live in the unit will already be established.  

• If you ever separate or divorce, money a relative paid into the housing unit could be fairly allocated through the divorce settlement.

• If there is ever a forced sale of the home, your parent will have legally established interests.

If you sit down with a lawyer and hammer out and sign a legal agreement before you install your accessory dwelling unit, you can solidify a parent’s long-term housing interests and keep their money separate from your marital assets. The attorney can communicate with the title company. Have the agreement recorded before anything unexpected happens. If you have problems convincing your spouse to make it legal now, your parent will be at risk later. As ADU construction expert Buz Artiano puts the point:

The things that will protect your parents work because everyone signs them willingly while the relationships are intact. If you can’t get there, an ADU…might not be right for your family.

An attorney may suggest naming all parties as co-owners on your deed. Every household has its own unique dynamics. And state laws differ, as will tax scenarios. Preserving everyone’s interests does require professional guidance.

Options for Your Parent’s Legal Protection

If you’re not naming everyone on your main deed, you may create a deed restriction for your parent’s lifetime right of occupancy of the accessory dwelling unit. The best time to do this is at the planning stage. The local department that approves your ADU application files your approved form, along with the new deed restriction. This is titled, for example, the Declaration of Restrictive Covenants for an Accessory Dwelling Unit.

This way, if you transfer your property deed, the new real estate owner will take the deed subject to the deed restriction, which is recorded in addition to your main deed. Once your deed restriction is recorded, you have impacted the title to your home. You now have two housing units. You hold one deed, with a deed restriction for the additional unit.  

Speak with an estate-planning or real estate attorney about what steps will best fit your family. You’ll want to take care that your mother’s financial contributions to the ADU can’t be counted against her for purposes of receiving Medicaid if nursing home care could be a possibility within five years.

You’ll also want to create a legal agreement to show how money will be kept separate if your mother is helping to fund the accessory home. And you’ll want the lawyer to go over the potential benefit of a life estate or trust for your family.

Working with a lawyer costs money. But the price of a good one is worth it if your goal is to find out how to best protect your interests and your parent’s.

Trend Ahead to Deed ADUs to Their Inhabitants?

We love to follow the trends in deed holders’ rights, and we know our readers do, too. So, here’s something we’ll be following.

By default, an accessory dwelling unit can’t be sold separately from your main home. Your ADU will usually share the main home’s address and utility accounts. It won’t have a deed of its own.

And yet Buz Artiano, the BuildX LLC founder, suggests creating your new ADU as a self-sufficient structure so if laws change, you’re ready to break off the deed to your ADU and retitle it into the inhabitant’s own name.

Artiano, who’s watching the law in Massachusetts, believes this is coming there. Artiano points to Seattle as an example. The city already allows “condominiumization” of accessory dwelling units.

So, Artiano’s suggestion is to build a detached ADU—a separate structure with its own water, gas, and electric services. This way, you “won’t have to go back and retrofit meters or trench to run new utility lines, or renegotiate easements” if you decide one day to break off your ADU from your main deed. Creation of a new parking area (under the local building regs) may be necessary. Note that your town may require this structure to be styled similarly to your main home.

Keeping It Good in the Neighborhood

Remember that ADU construction and allowable uses must follow your county or city government rules. With that in mind, this article is general information only. Your situation is unique and needs professional guidance that fits you and your family.

So, is every party on the same page? Can you create a legal agreement with your household? Has your building plan been approved by local government? If you take all the right steps, then an ADU can be an excellent family housing solution—and investment.