How to Split Home Equity in a Divorce

Key takeaways

• Most divorcees have three options when it comes to the marital home: (1) both keep the home temporarily; (2) one ex keeps the house and refinances the mortgage, which removes the other ex from the loan; or (3) sell the house and split the equity.

• Even in an amicable divorce, it’s important that both spouses get an appraisal, or in some cases, agree on an appraisal process/appraiser. This ensures that you find an agreeable valuation. If there are two appraisals, it’s also unlikely that both appraisals would suffer the same errors.

• How you split your home equity in a divorce can also depend on state property laws. If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin), state law may require you to split your home equity evenly.

No couple enters a marriage contemplating that they may one day go through a divorce. If that day does come, dividing assets and sharing property can be difficult.

Dividing home equity in a divorce can be contentious for homeowners whose marriage is ending, especially where the home’s value has increased, or one partner contributed more to mortgage payments.

The first step is determining how much equity you have established in the home. To do so, subtract the amount you owe on the mortgage from the home’s current market value. The difference is your equity. Once you have a figure, it’s time to divide the proceeds.

What can happen when you decide to split

The home is usually the largest asset a couple holds. When you’ve spent years paying down your mortgage, the percentage of the home you own grows, creating more equity. As home prices have increased dramatically over the past three years, your home’s equity has likely grown.

Both spouses can profit from a home sale even in a contentious divorce. But not all divorcing couples sell their home. Sometimes, one person keeps the home and buys the other out. Other times, they keep the house in both names. What’s right for you depends on your financial and family situation.

Consider taking the following steps to assess and divide the equity. Remember that the best thing to do is to consult a divorce attorney to learn what’s best for your particular situation.

1. Determine the amount of the home’s equity before the divorce

You cannot divide the equity if you don’t know how much you have.

Because most homeowners finance their purchase with a mortgage, an important first step is to compare your home’s outstanding mortgage amount with its current market value. To determine the market value, you have two options:

• Get a home appraisal. A home appraisal is prepared by an experienced, unbiased and licensed home appraiser. The price can range from a few hundred dollars to a thousand (or more); it will depend on your location, size of your home and whether your home has any known issues.

• Obtain a comparative market analysis (CMA). Licensed real estate agents perform a CMA, which compares your home’s value to the value of comparable sales in the neighborhood.

A home appraisal is the more common route. Frequently, each person has an appraisal done by a professional.

Once you have the home’s value, subtract the outstanding mortgage balance from that amount to determine your home’s equity.

2. Figure out who gets the house

This can be more contentious than determining home value. If you don’t want to sell the home, you usually have a few options.

• One spouse buys the other out. This typically requires one spouse retaining title to refinance the existing mortgage, which removes the other spouse from liability for the loan. Ideally, the new mortgage will pay off the old one and can provide enough cash to buy out the other spouse’s ownership interest.

• Both spouses keep the house. This commonly happens when children are involved, or when the real estate market is not favorable to sellers. Perhaps the leaving spouse pays the mortgage while the remaining spouse remains with the kids until they finish school.

• Sell the house and split the proceeds. When neither spouse wants to keep the house – or one can’t afford to refinance and buy the other out – selling might be the best option. The “proceeds” are determined by subtracting all sale-related expenses from the sale price. This includes paying off the mortgage, related taxes, closing costs and realtor’s fees. Whatever’s left is what you split.

3. Determine the best way to split the equity

In some divorces, the equity, or remaining proceeds, is divided equally. That’s often not the case, however. During the marriage, maybe one spouse earned a higher salary and paid a larger portion of the mortgage. Perhaps the other spouse took more responsibility for household duties in exchange.

In any case, how to split the proceeds is often be a legal question best answered by divorce attorneys during negotiations. Common methods of splitting the equity include:

• Division in community property states. A minority of states follow the community property regime. This means you must divide your property evenly.

• Division in equitable distribution states. Most states require equitable distribution. This method accounts for each ex-spouse’s contributions during the marriage.

• Title vesting. In some cases, you may have one of the various interests in the property, such as a tenancy in common or life estate. In that case, the size of your interest depends on the title you hold to the property.

• Deciding in court. Sometimes divorcing couples cannot agree on how to divide the equity. In that case, a family court judge decides.

4. Figure out how to use the equity

Once you’ve obtained home equity after the divorce, put it to use. Depending on the state of your credit, you may rent for a few years before you’re ready to buy again. As you evaluate your finances, if you’re thinking of moving to a new city, you’ll have to account for moving expenses and relocation costs, too.

Unlock Technologies provides access to home equity

You also may be able to tap into your equity using a home equity agreement from Unlock Technologies. Our home equity specialists will walk you through the process. In exchange for a percent of your home’s future value, we will give you a lump sum of cash now. This is not a loan, so there are never any interest or installment payments.

Contact us today to get started.