Divorce has the potential to be a very difficult process. Spouses often find themselves disagreeing about what is necessary and what is fair. Property division can be a source of conflict as spouses begin preparing to separate their lives. The assets that they have accumulated while married are subject to division unless they already have a marital agreement in place to guide the process. People tend to prioritize assets that have emotional value to them. They may also focus on assets that may have a profound impact on their future financial stability.
The home where spouses live together may represent a major investment. Spouses may have allocated a significant amount of their income toward mortgage payments and property improvements. The equity accrued in a home can be a major contributing factor to the overall value of the marital estate. How can spouses address home equity when they divorce?
First, they determine how much equity they have
To fairly or equitably divide accrued home equity, spouses first have to determine the total amount of equity they have accrued as of a particular valuation date. They may do this by working with an appraiser to determine the current fair market value of the property. Comparing that figure with the remaining principal balance on the mortgage can provide spouses with a reasonable figure for their current home equity.
Next, they must address possession
Determining how to address home equity first requires an agreement regarding possession of the property. Sometimes, neither spouse wants to stay in the home, and they can agree on a way to divide the proceeds of selling the home.
In some cases, one spouse may stay in the home because of custody arrangements. Other times, they may want to remain in the marital home due to its proximity to their family members or place of employment.
The spouse who stays in the house may need to refinance to withdraw equity to compensate the other. They can also take on more marital debt or agree to let their spouse retain other assets that have significant financial value.
If spouses cannot reach an arrangement that they both agree is fair, then they may need to litigate. A judge can review an inventory of assets and decide how to address home equity along with shared debts and assets in accordance with the state’s equitable distribution rules.
Having a plan to address the most valuable assets in the marital estate can help people avoid conflict and set reasonable goals as they prepare for divorce. Home equity is often a key issue during property division negotiations and litigation.