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 when it comes to points 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.
So the question arises, how do you go about dividing the home in divorce?
Related Reading: Sweat Equity and Divorce Settlements
Valuing the Home
Unlike liquid assets, those 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.
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 by going this route.
Evaluation by a Realtor
While the testimony of a realtor in regard 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 provide this service for a nominal fee.
Other Reading: 8 Signs They Might be Hiding Assets During the Divorce
How Do You Divide the Home?
Once you determine the value of the property, you face additional challenges. Next up is to determine how to divide the home.
You also have several common options to accomplish this. Which strategy you choose depends a great deal 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 and tidy. 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’re unable to turn it around 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.
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 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.
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, which 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 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
From The Radio
One of our founding partners, Rick Jones, regularly appears on the Danny Bonaduce and Sarah Morning Show. There he takes calls from listeners who have family law issues. In a few recent episodes, callers wanted to know how to protect her property in an upcoming divorce.
CALLER: “I’m thinking of leaving my husband. We don’t have any kids, but we do own three houses between us. One of them I owned before we got together, and one of them we bought together. The third my dad actually left me when he passed away earlier this year. I don’t really care about the house we bought together, but I’d like to know how to protect the other two that are mine.”
Rick: “The first thing I’m going to do is caution you to say things like you just finished with which is, ‘I really don’t care about the community house, but I want to protect these other two.’ You’ve got to look at all three. So in order to protect the two that are most important to you, you can’t just give away that third one.
“This is almost a classic bar-exam example of how to characterize an asset.
“There’s community property, which generally means it’s shared because you bought it during the marriage.
“There’s separate property, which is things like what you came into the marriage with. There can be a little confusion, because if you came into the marriage with a home that you still had a mortgage on, and you’ve had some equity that you paid down while married, there may be some community in-roads.
“Lastly, the house you inherited, especially if you inherited it free and clear, inheritance is definitely a recognized piece of separate property. So that should be a relative slam dunk for you.”
Other Reading: Your Business is A Divisable Asset: Can You Protect It In Divorce?
CALLER: “My wife and I have been married for about five years. Things are not going that well, as happens. We own a house together. Her parents gave us the down payment for the house when we got married as a wedding present and I have been making the payments on the house ever since. I would like to keep the house. You know, the real estate market being what it is. I’m just curious if I’m able to do that when we split up.”
Danny: “There’s a bunch of stuff going on there if I’m not mistaken. My knee-jerk reaction was, ‘Oh, buddy,’ But the second part is, ‘Couldn’t he buy that house?'”
Rick: “Well, there was a twist and a turn there. It’s a mixed bag a little bit. The good news is that one of you is able to keep the home. The last resort obviously is for you to order a sale, because both of you would eat the cost of sale associated with it. So now the question is a couple of things:
“Do either of you have a better opportunity? Can you argue that it’s separate property? The fact that you’ve been paying the mortgage, unfortunately, doesn’t help you, that’s not a feather in the hat.”
Danny: “It doesn’t help him get any of that?”
Rick: “What you’re paying it with is community funds. It’s his own income. It’s something that’s shared and shared alike between the two of you. Now my concern is for the down payment. To the extent it was truly a gift from the parents to husband and wife then you’re okay.
“Unfortunately, when you get into a divorce situation, sometimes truth morphs a little. So it may very well come out that the parents were ‘loaning this’ or giving it ‘to their daughter.‘”
Danny: “So if she fights, she’ll probably get that house then?”
Rick: “Well, I would say this. Even though that separate property argument exists for her, the biggest issue is which of the two of them is most in a position to continue to fund the home? Because if there’s any equity, understand that if you’re keeping the house, you’ve got to cash the other person out.
“To the extent that [he] is the breadwinner in the family, then yeah, he’s got a better opportunity of keeping it because not only will he be able to cash out, but he’s able to fund the house going forward.”
Related Reading: Boomers and Gen-X and Millenials Oh My: A Look At Divorce Rates By Generation