Dividing Home Equity in Divorce

Either because of economic constraints or emotional ties to a house, many divorcing couples no longer want the home they purchased during their marriage. In such a case, the divorce process will have to divide the equity the parties have built in the home.

Calculating Home Equity

To divide home equity in a divorce, the first step is to calculate the equity by getting the currently appraised value of the house by a qualified residential real estate appraiser, and subtracting the mortgage and any other liens on it. Be sure that the appraisal considers any additions or enhancements made to the home or property that will increase the value of the home.  Before dividing home equity, the divorcing parties need to get an appraisal that evaluates the proper value of the home at the time of the divorce.  After the sale of the house, the parties will need to figure out how the equity is split.  How much each spouse gets will depend on the state law, and on the source of the money that was used to purchase the home.

Dividing the Equity

During the course of a marriage, anyproperty the couple acquires during the marriage is considered community property.  Generally, if the house was purchased with community property funds during the marriage, the house would be considered community property because the source of the funds determines the character of the item. When the house is considered community property, each spouse would have a one half interest in the house and would have a one half interest in the equity. For example, if the equity is $100,000, each spouse would be entitled to $50,000 of the equity.

If one party receives the house as separate property, however, then there may be no division of the home equity.  Property is only considered separate if it was acquired before the marriage, after the marriage, or as part of an inheritance or gift to one spouse and not the other.  It is highly unlikely that a marital home acquired during the course of a marriage is separate property, so the two parties will likely split the equity of the home equally.

The spouses can agree to an unequal division of community property; a spouse can receive more than half the community property pursuant to an agreement with the other spouse. The agreement should be in writing to avoid future potential legal disputes.  Any agreement for an unequal division of property can be overturned by a judge if the division is not fair and equitable for both parties.

When One Party Wants the House

If one party is interested in buying the home from the other party, the two will need to negotiate the appropriate sale price.  The two sides would have to negotiate a fair split of commissions, taxes during the divorce, and other costs associated with the sale.

In addition, the buyer of the home would most likely wish to buy out the other party with a lower appraisal, while the seller would clearly prefer a higher appraisal. Since appraisals are just estimates of the value of the home, selecting an appraisal or an appraisal value may be the most difficult part of the process.  One way to eliminate this problem is to select two appraisers, and then pick a number mid-way between the appraisal provided by each appraiser. This way, neither party is affected by an overly high or low appraisal value. Some parties may choose to select three appraisers, and take the median appraisal value.

Getting Legal Help

As with any issue associated with a divorce, both parties should consult and hire an experienced family law attorney familiar with the laws of the state.  Dividing home equity is a critical process for both parties, and it should not be done so without legal representation.

Case Studies: Dividing Home Equity in Divorce

Case Study 1: Equitable Home Equity Division

Sarah and John, a divorcing couple, faced the challenge of dividing the equity in their marital home. With the assistance of experienced family law attorneys, they obtained an appraisal to determine the current value of the property. Based on the appraisal, they were able to divide the home equity equally, ensuring a fair distribution of assets.

Case Study 2: Community Property and Equal Equity Split

Mark, going through a divorce in the District of Columbia, learned about the concept of community property. Since the house was acquired during the marriage, it was considered community property, entitling each spouse to an equal share of the home equity. Mark and his spouse agreed on an equitable division, ensuring a balanced outcome.

Case Study 3: Negotiation for Home Purchase

Lisa, who wished to retain the marital home after divorce, engaged in negotiations with her spouse. They determined a fair sale price, considering factors such as commissions, taxes, and other associated costs. Appraisals played a crucial role, and they decided to select two appraisers and settle on a value between the two estimates, ensuring a more objective assessment.