Divorce proceedings involve making numerous major changes. The spouses have to plan to live separately. They also have to divide their financial resources and parental responsibilities.
Certain assets demand more attention and consideration than others. One spouse may not have much interest in the other’s wardrobe or hobby equipment, but they may both worry about a family business or retirement savings. For a large number of couples, home equity accumulated during the marriage becomes the most contentious aspect of their divorce negotiations. Even if they agree on who stays in the home, how they will share its value can be a difficult issue to address.
How can couples handle home equity in a manner that is fair for both spouses?
Determine how much equity there is
The first step toward a fair property division arrangement is to know what different assets are worth. Spouses sometimes fall into the trap of relying on the purchase price for the home where they live to calculate home equity. However, they may have made improvements to the property. Additionally, the market may have pushed the prices up since they bought. Many couples need to have a professional appraisal performed to know what a home is worth. That helps them share the equity in a fair and appropriate manner.
Consider refinancing as a solution
One way to directly divide home equity is to refinance the property. By taking out a new mortgage and paying off the old one, the spouse retaining the home can potentially withdraw some of the accumulated equity. They can then make a lump-sum payment to the other spouse that represents their fair share of home equity. Such solutions are efficient, but they can be unrealistic depending on the value of the home and the financial circumstances of the spouses.
Offset home equity with other assets
In scenarios where immediately refinancing isn’t a viable solution or where one spouse cannot withdraw equity and still afford the home, it may be necessary to be more creative when dividing resources. In many cases, spouses who are homeowners may have other valuable assets as well. They can factor those into the property division process. The law does not require the division of each asset but rather an overall equitable outcome for the process as a whole. The assets that one spouse retains and the debts either spouse takes responsibility for can influence the most appropriate solution for home equity.
Understanding what it takes to fairly address home equity can help those preparing for property division divorce negotiations or litigation. Those who can set their emotions aside and focus on the long-term consequences of decisions are in the strongest position to negotiate a settlement that works for everyone.