Dividing The Home In Divorce

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Dividing the marital home in a divorce is often a close second when it comes to issues of contention (the front runner is child custody).  Real estate is frequently a couple’s most significant asset and deciding how to distribute the property can be tricky, particularly if you still have a mortgage. Your lender will continue to consider you and your spouse jointly obligated until the property is either sold or refinanced.

How Do You Divide The Home?

Unlike liquid assets (assets that can quickly be converted to cash with minimal impact to value) real-estate poses some unique challenges like determining if either spouse will remain in the home after the divorce, accurately valuing the property, and reaching a reasonable distribution of any equity in the property.

There are three common 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 that a property should sell under normal market conditions. It is important to note that “normal” is subjective but generally speaking a normal market is one that is not in distress—meaning there haven’t been a large number of foreclosures or other unusual circumstances that would affect property prices within the market.

An Appraiser

A real estate appraisers estimate a property’s values by evaluating a number of factors such as location, condition, and unique characteristics. Once the property has been evaluated the appraiser will determine the approximate value by considering the results of the evaluation, other factors, and recent sales of comparable homes. The cost to hire an appraiser will vary, but the average is around $500.

Evaluation by a Realtor

While the testimony of a realtor in regards to the valuation of a property is not admissible in a divorce trial, this is a common method of valuation. A realtor that is familiar with the market can evaluate the strengths and weaknesses of the property and estimate the potential selling price on the open market. This can be the most cost effective method of valuing the property, as some realtors will provide this service for a nominal fee.

Once the value of the property has been determined the next challenge is determining how the asset will be divided. There are several options available to couples and the best choice will depend on your unique situation.  A buyout by one spouse is a common way to divide real estate.

If neither party is adamant about staying in the house, selling the property might be a good choice.  In a healthy real estate market this can be the simplest solution. The property is sold and any equity is divided.

If the property has negative equity (you owe more than the fair market value) you will have to find a solution for dividing the debt. This might include trying to refinance the property, getting a loan modification, doing a short sale, foreclosure, or filing for bankruptcy.

If your property has negative equity, it is imperative that you work with an attorney and financial planner to evaluate all your options and decide on the best course of action given your personal circumstances.

If the couple decides one person will stay in the home, then the divorce decree should state that the person remaining must refinance the property by a date determined by the court. The refinance will remove the other spouse from the mortgage and removing any financial obligation. Usually the spouse that is keeping the house will also need to compensate the vacating spouse for any equity that has accrued.

This is a rough outline of some of the factors and options that are used to distribute a property in divorce. Dividing real estate is complicated and there are numerous ways to configure how a property is split.

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