For most people, a house is the biggest purchase they ever make. This also makes it one of the main assets to divide during a divorce. Figuring out how to divide the marital home is often a close second in terms of conflict. (Child custody remains the frontrunner.)
How Is A Home Treated in A Divorce?
Dealing with real estate can be tricky, especially if you still have a mortgage. Divorce doesn’t automatically change the contract you signed. Lenders still consider you and your spouse jointly obligated unless you sell or refinance.
Valuing the Home
Unlike liquid assets, which you can quickly convert to cash with minimal impact on value, real estate poses unique challenges. Determining if one of you will stay in the home, accurately assessing the property value, distributing equity, and more all pop up.
There are three standard methods for determining the property’s value: the tax-assessed value, an appraiser, or an evaluation by a realtor.
Tax Assessed Value
This method is the least common and uses the property’s tax-assessed value. The tax-assessed value is usually the same as the property’s fair market value. This is the price for which a property should sell under normal market conditions.
It’s important to note that “normal” is subjective. Generally speaking, a normal market is one not in distress. Meaning there haven’t been a large number of foreclosures or other unusual circumstances that affect property prices within the market. And as you probably know, the market fluctuates a great deal.
An Appraiser
A real estate appraiser estimates property value by evaluating factors such as location, condition, and unique characteristics. After evaluating the property, the appraiser determines its approximate value.
They consider the results of the evaluation, other factors, and recent sales of comparable homes. The cost to hire an appraiser varies, but expect to pay a few hundred dollars by going this route.
Evaluation by a Realtor
While the testimony of a realtor regarding the valuation of a property is not admissible in a divorce trial, this is a common method of valuation. A realtor familiar with the market can evaluate the property’s strengths and weaknesses.
They use this to estimate the potential sale price on the open market. This can be the most cost-effective method of valuing the property, as some realtors provide this service for a nominal fee.
How Do You Divide the Home?
Once you determine the property’s value, you face additional challenges. Next, you need to decide how to divide the home.
You also have several common options. Which strategy you choose depends heavily on your specific circumstances.
- One method to divide real estate is for one spouse to buy out the other. This is clean and straightforward. However, it also requires a lot of capital upfront. If you just went through a divorce, that can be tough to come by.
- If neither spouse has a burning desire to remain in the house, selling is often a good choice. Once the property sells, the two sides split any profit. Again, neat. However, this option works best in a healthy real estate market and takes time.
Related Reading: How the Court Divides Debt in a Divorce
What If You Have Negative Equity?
Problems with selling a house arise if you can’t sell it for more than you owe on the mortgage.
If the property has negative equity, you’ll need another solution to address the debt. This often entails refinancing the property, loan modification, a short sale, foreclosure, or even filing for bankruptcy.
In this case, work with a financial professional or experienced attorney. Evaluate your options to find the best course of action for your circumstances.
Related Reading: Ways People Damage Their Own Divorce Cases
If One Spouse Keeps the House
Often, one person remains in the home. There are a couple of ways this scenario often unfolds.
If one spouse retains sole possession of the home, the divorce decree should require that person to refinance the property by a certain date. This removes the other spouse from the mortgage and lifts any further financial obligation.
These settlements often require the remaining spouse to compensate the other party for any accrued equity.
If your case involves children and custody, it complicates things even further, as so often happens.
If the custodial parent remains in the home with the children, this often impacts child support, spousal support, and more.
One common situation is that they remain in the house until the last child graduates high school. From there, you can sell the house and split any profits, one spouse can buy the other out, or you can come to another arrangement.
This is a rough outline of some factors and options used to distribute property when ending a marriage. It’s not exhaustive. Real estate is complicated, and there are numerous ways to divide a home in a divorce. As usual, it’s in your best interests to consult with an experienced professional.
Related Reading: How the Division of Property Works in Washington