Dividing The Home In Divorce

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For most people, a house is the biggest purchase they ever make. This also makes it one of the main assets to divide during divorce. Figuring out how to divide the marital home is often a close second when it comes to points of conflict. (Child custody remains the frontrunner.) 

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.

So the question arises, how do you go about dividing the home in divorce?

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Valuing the Home

Unlike liquid assets, those you can quickly convert to cash with minimal impact to 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 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’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.

An Appraiser

A real estate appraiser estimates property value by evaluating factors such as location, condition, and unique characteristics. Once the property has been evaluated, the appraiser determines the 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.

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 familiar with the market can evaluate the strengths and weaknesses of the property. 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 will provide this service for a nominal fee.

Related Reading: 8 Signs She Might be Hiding Assets During the Divorce

How Do You Divide the Home?

Once you determine the value of the property, you still have more challenges. Next up is to determine how to divide the home. 

You have several common options to accomplish this. Which strategy you choose depends a great deal on your unique 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 and tidy. However, this works best in a healthy real estate market.

Problems arise if you’re unable to sell for more than you owe on a mortgage. If the property has negative equity, you have to find another solution for dividing 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 all your options to find the best course of action given your personal circumstances. 

Often, one person remains in the home. There are a couple of ways for this scenario to unfold.

If one spouse retains sole possession of the home, the divorce decree should include stipulations for that person to refinance the property by a certain date. This removes the other spouse from the mortgage and lifts any further financial obligation. Usually, the settlement requires the remaining spouse to compensate the other party for any accrued equity.

If your case involves children and custody, it complicates things, as so often happens.

If the custodial parent remains in the home with the children, it 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 by any means. Real estate is complicated and there are numerous ways to divide a home in divorce.

Related Reading: Sweat Equity and Divorce Settlements

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