How does inheritance in a divorce factor in if used for remodeling a house?

Not an easy question to answer because a lot of variables. First and foremost, she will need to be able to trace her inheritance money and, if it was commingled to the point where it lost its separate property character, she will be out of luck.

She has the burden of tracing the money to her inheritance. If she commingled it she may be unable to trace it and so unable to claim it back.

Only if she can trace it back to the separate inheritance funds, which could be difficult given the commingling. She would also be limited to recovering only the amount equal to the increase in the value of the equity resulting from the remodel improvements. Frankly, I would see this as a case that ought to settle based on some reasonable return for her investment (your question implies the home is no longer underwater; perhaps some fraction of the equity pro rate with your contributions to equity), ; trying it will only enrich the lawyers. (full disclosure- this is more my mediator persona talking than a litigator. Given her proof problems, you could probably take a fairly hard line. One essential datum- how much $$ are we talking about?