The process of separating financially is a consequential process in any divorce. Couples have to address their shared financial obligations and make arrangements to divide their resources. Assets that represent more value and emotional significance become priorities during divorce proceedings.
For most couples, the home (a.k.a. marital residence or marital home) where they live not only holds the most significance to them personally but encompasses the most value to distribute between them. Even though there may still be a mortgage attached to the property, the equity accrued in the house may be, and often is, the single largest contributing factor to the overall marital estate.
Couples who own a home together often have several practical issues that they need to resolve to move forward with a divorce. For example, spouses typically need to address the following concerns during a divorce involving their marital residence.
Who retains possession of the marital home?
The early stages of divorce can sometimes feel like a cold war. Both spouses are miserable, but neither wants to leave the marital home. Parties sometimes worry that moving out may prevent them from regaining possession of the property later, which is not accurate. Parties may not the individual financial resources to temporarily relocate during a divorce or want to avoid parenting time issues early on. Spouses may need to evaluate the situation carefully while determining who retains possession of the home during the divorce process.
What is the marital home worth?
The purchase price for the property may no longer represent its fair market value. Especially if the couple has lived at the home for five years or longer, the fair market value of the property has likely changed during their occupancy.
Factors including overall changes to the real estate market (location, schools, etc.), improvements to the property and inflation can affect what the home is worth. Spouses typically have to either agree on a value for the marital or hire an appraiser to effectively address the home (both the retention of the home and equity therein) during divorce proceedings.
How do divorcing couples share the equity in the marital home?
Sometimes, spouses decide to sell the marital home because neither wants to live there or can afford the property. Other times, one spouse might stay in the home after the divorce. There tends to be a judicial preference to allow a party to remain in the marital home, especially when children are involved and there is a path for distribution of a portion of the equity to the other party.
In either scenario, the spouses need to work out an arrangement that allows them to address the accrued equity as part of the overall property division process. Agreeing to a certain split of sale proceeds is one option. Arranging for the spouse who intends to stay in the home to refinance, with a cash-out option, or assume the mortgage and withdraw equity is another. Making specific arrangements for other marital property and marital debts can also be a way to balance out the equity accrued in the home, e.g. another cash-based asset can offset the equity payment alleviating a need to pull equity from the home directly. However, it is critical that people understand removing the name from title does not remove someone’s name and liability from the mortgage debt obligation – the latter requires a sale, assumption or refinance.
Recognizing that high-value assets can easily complicate property division negotiations can help those preparing for an upcoming divorce. Real estate and other valuable resources often require careful consideration during this process. Seeking experienced legal guidance is essential.