Divorce requires the separation of previously mingled lives. Spouses have to start thinking about how to live on their own. Part of that process entails the division of marital debts and shared assets.
Divorcing couples may have a variety of different resources that they need to divide. Financial accounts, personal property and vehicles are common marital assets. Spouses may also share the home where they live. Provided that they acquired the house during the marriage or contributed marital income toward the maintenance or acquisition of the home, it is likely part of the marital estate and subject to division during the divorce.
How can spouses divide home equity in a fair and appropriate manner?
By selling the home
For many couples, the easiest way to split home equity during a divorce is to list the home for sale and divide the proceeds. This arrangement allows each spouse to move on from the marriage with a significant nest egg. Spouses can also potentially use proceeds from the transaction to cover shared financial obligations, thereby reducing the pool of marital debt. In cases where neither spouse feels strongly about the home or there are no children to consider, liquidating the property is sometimes a simple solution.
By refinancing
Maybe there are young children, and the spouses agree that the parent serving as the primary caregiver should stay in the home until the children finish school. Perhaps one spouse has a strong attachment to the property or to the neighborhood. In scenarios where the agreement allows for one spouse to stay in the home while the other leaves, the spouse staying in the home may need to refinance. They can then withdraw some of the accumulated equity to compensate the other spouse for their portion of the home’s value.
By using other resources
A spouse who has focused more on raising the family’s children than their career may not be able to qualify for a mortgage on their own. Even if they qualify, they might not be able to afford payments if they have to increase the principal balance by withdrawing equity. Spouses can potentially negotiate arrangements in which other assets or marital debts help balance out the retention of the home. Higher-value assets, including businesses, retirement savings and vehicles, can be particularly useful when trying to account for equity during property division negotiations.
Every marital estate is different, and every divorcing individual has unique needs. Recognizing that there are many potential solutions for sharing home equity during divorce can help people come up with creative solutions that may work given their unique circumstances. Those who have assistance when navigating complex family law matters may have an easier time finding reasonable and effective solutions for property division issues.