Property division is one of the most important and contentious aspects of any divorce. Spouses have to report what assets they acquired during marriage and what debt they accumulated. They then need to find a way to share or divide those resources.
In some cases, it is possible to directly divide an asset. Couples can split a financial account so that each retains a portion of the balance. Other assets can be harder to address. Both spouses usually can’t retain ownership of the home where they lived during their marriage. Typically, only one spouse retains possession of the marital home. However, that does not automatically mean that the spouse who stays in the home also keeps all of its equity.
Most couples have to find a way to address home equity as part of their divorce proceedings. The following are some of the ways to fairly divide the accrued interest spouses have in their marital home.
Refinancing to withdraw equity
Many married couples share a mortgage. When one spouse plans to retain the home after the divorce, they usually have to refinance the mortgage. Spouses may need to have an appraisal performed or hire a real estate professional to establish a fair market value for the home.
From there, they can agree on an appropriate amount of equity for the spouse leaving the home to receive. The spouse refinancing the mortgage can withdraw equity to pay the other spouse for their interest in the property.
Using other assets and debts
There are scenarios in which withdrawing equity while refinancing is not the best solution. One spouse may already have a difficult time qualifying for a mortgage on their own that they previously obtained with two cosigners.
Drastically increasing the principal balance by withdrawing half of the equity accumulated could make the mortgage unaffordable or prevent them from qualifying. It is often possible to use other assets to balance out the home equity retained by the spouse staying in the marital home.
Vehicles, businesses, investment accounts and retirement savings can all serve as a way to balance the equity retained by one spouse. Debts ranging from credit card balances to medical debt related to the care of their shared children received could also help offset home equity. The spouse keeping the home may sometimes agree to take responsibility for more marital debts in exchange for receiving more equity.
Understanding the basic solutions employed when dividing home equity can help people achieve an appropriate outcome to a pending divorce. High-value assets, like a marital home, may require careful consideration and planning.