Divorce is not just emotional separation. It is also about financial separation when it includes common property, such as the home, the most valuable asset owned by many. Once a couple decides to break up, one of the most challenging aspects of division is knowing what will happen in the home. Understanding the ownership or fairness of each party.
If you own a home entirely, splitting your home equity is relatively easy. However, things can be more complicated if your property has a mortgage or another lien, like a home equity loan.
There’s a lot to organize, but understanding your options, clear plans, and open to compromise will make the entire process even smoother.
How Home Equity is split into divorce
The division of home equity during a divorce usually depends on a variety of factors, including pre-marital or post-dop agreements after marriage and post-marital hubtial departure agreements.
Community property and fair distribution
The property status of a community can be split into marriage stall assets based on what is considered to be “fair” when the marriage stall assets are usually split evenly between spouses at divorce (50/50), and the fair distribution status is considered “fair.” The majority of the state is in fair property.
If a couple buys a house together after marriage, it is considered the property of the couple. If one spouse bought and owned a house before marriage, it is usually considered another property, and therefore can generally be maintained.
However, things can be a little more complicated when a non-owner spouse helps pay mortgages, repairs, renovations, or other expenses related to the home. In this example, the House of Representatives may be considered a mixed asset. One spouse has ownership, while the other spouse asserts some fairness for their financial contributions. The courts are also known to consider “sweat fairness.” Non-financial contributions that a non-owner spouse may have entered the home (which can run, maintain, or work on).
All this means that “it’s not automatic for a house to go to (the owner).” Even so, other spouses have a stake in their interest and deserve compensation for it based on changes in value during the marriage. “I bought a house for $200,000, but when I moved it was $300,000 and today it’s worth $500,000. (The court) only sees an increase in stocks you’ve been in the house since you were married,” she explains.
How to split home equity in divorce: 3 options
Most options for dividing fairness in divorce involve first assessing the value of the property. This step is important as it determines the difference between home equity, the market value of the property and the remaining mortgage amount.
Once the value of the home and the interests of each partner in that value have been determined, the plan can be advanced. There are many variations, but the options for splitting home equity in divorce fall into three basic categories:
1. Sell your home and divide fairness
This option is perfect for couples who want a financially clean break and prefer to avoid homes. Also, after paying off debts such as mortgages and housing equity loans and credit lines (if any), the remaining shares are usually split between the couples according to a divorce agreement.
Adam Coleman, CDLP and branch manager of a Charlotte, North Carolina-based mortgage broker, calls “the path of least resistance: sell homes, split equity, and then both people go on separate paths.” It avoids the need to eliminate people from the complications of titles, mortgages, or joint ownership.
However, due to record home prices, high mortgage fees and rising rents, this option may be less desirable for divorced couples these days. “It’s going to cost more than that to get a home that rivals what you’re leaving,” says Lenny. “House prices are rising and interest rates are much higher. It’s a very realistic challenge right now. Even if we try to sell our house and (each of us) decide to rent it, we’re going to pay more rent than we pay for the mortgage.”
It is also important to consider the broader financial implications of selling a home. After the costs to sell the house, such as existing debt and closing costs, are paid, the shares are split between the two parties. Additionally, selling your home can result in tax outcomes such as capital gains and taxes.
2. Buy one spouse
Plan B: One spouse becomes the sole owner of the house, while the other spouse compensates for shares within it. This option is perfect for divorce couples when one person wants to maintain a home and has a means of compensate for others.
If the home is free and clear and one party wants to maintain the property, it may be the only thing that is needed. This document exposes a person’s interest in the property and removes the name from the title.
However, if the property still has a mortgage, it becomes even more difficult. The spouse you buy is generally not able to take over an existing mortgage if it is in the name of another spouse or if the couple pulls it together. Most loans are not expected. This means that one loan cannot be transferred from one borrower to another (and what is expected still requires lender approval). To make the purchase option, you will need to refinance your mortgage.
Refinancing is like getting a whole new mortgage. You will need to run the entire application process again. That means you qualify for the loan with just one income (though it can include spouse or child support payments). This can be difficult. Equally challenging: the remaining spouses must come up with funds to acquire other spouses. If they can’t do it from the pocket, they can try to get extra money while refinancing.
“If the house doesn’t have enough fairness to clear the original mortgage, if they pay off what they want to their ex-spouse, then someone brings more money to the table or go back by default to selling the house and walks with what they can,” says Stephanie.
3.Co-Own Home/Deferred Sale
Going for a postponed sale and sharing ownership of home during that time could be another practical solution. This option is perfect for couples who are divorced from children who want to remain as stable as possible in their lives.
This arrangement allows one spouse, usually a primary custody spouse of the child, to remain in the home. “Perhaps the kids have been around for a few years since high school and you don’t want to uproot them and move them to another area,” says Lenny Coleman. “It’s like the kind of situation we see most often when both of us are trying to maintain ownership of the home.”
In many cases, the title and mortgage remain the same for this period. But in the face of rising mortgage rates, Adam Coleman says the couple has become creative with joint ownership agreements over the past few years.
“Suppose you have an empty spouse on a mortgage,” he says. “They are trying to incorporate them into their settlement agreements that they will remain on a mortgage for a year, two or three years, or a year, two years or long for their spouse to refinance.
This solution simplifies life to maintain the status quo. However, it is important that joint ownership agreements are temporary arrangements with finite terminology, especially as they are risky for vacant spouses. “People who have their homes open, they’re still on mortgages,” Adam says. “That mortgage payment is still tied to your credit report and Social Security number. So, if someone who keeps the house misses payments or defaults, then the credit of the vacant spouse will be significantly reduced at that point.”
To prevent misunderstandings and disputes, experts recommend legal agreements that outline the liability for each party’s rights and property, such as financial contributions and the home sales or refinancing process.
Final words about home equity and divorce
The division of equity in divorce can be both emotionally and financially tough. Whether you decide whether to sell your house, buy out a partner, or agree to own it together, each option has a mix of pros, cons and difficult choices.
“Sometimes the most difficult part comes together,” Fields says. “In divorce situations, there is generally adversity.”
It is best not to navigate the complexity of splitting home equity on its own. Divorce lawyers and real estate agents can explain your options to you. You can consult with a Certified Divorce Loan Professional (CDLP) who is trained on the financial and legal aspects of divorce, especially as it relates to real estate, mortgages and financing. Hiring a professional may seem like an additional unnecessary expense, as Adam Coleman points out, “if you have the right person to specialize in everything,” which is more efficient.
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Additional Reports by Larissa Runkle
