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Home Equity and Your Divorce: What You Need To Know

January 14, 2014

Marriage is an economic relationship as much as a social one. In a divorce, fairly dividing marital assets is one of the most important concerns.

Equity in a home is the difference between the market value of the real estate and the amount still owed against it on a mortgage. Equity in a shared home is a unique asset; it involves shared value, but is also characterized by joint debt.

Deciding how to split home equity in your divorce can certainly be a challenge. Even so, with a strong grasp of your options, you’ll have a better chance of coming to a resolution that will be acceptable to both you and your former spouse.

Consider Whether You Want To Keep Marital Home or Convert Equity Into Cash

Perhaps the simplest way to deal with home equity in a divorce is to sell the house, pay off the balance of the mortgage, and split up any remaining proceeds. In today’s real estate market, however, this is not always possible or desirable.

If one former partner wishes to keep the house individually, a divorce agreement can be structured so that the party who gives up his or her interest in the home equity is compensated with other assets. For example, one party might give up a stake in a retirement account in return for sole ownership of the home.

Normally, refinancing the loan under the name of just one spouse can be accomplished as long as the mortgage is not underwater and the spouse staying in the home has sufficient credit and income on his or her own to qualify for a refinance. If the spouse staying in the home is not able to qualify for a refinance, the mortgage may be left as it is, although this is very risky; under such circumstances, the credit reports of both borrowers will be negatively impacted if mortgage payments are missed.

There are some workarounds if the mortgage is left in the name of both former partners. For example, your divorce settlement can state that if the one who keeps the house misses a mortgage payment, the house has to be sold or refinanced. Whatever the arrangements, the party keeping the house should always preemptively prepare a comprehensive post-divorce budget in order to determine whether they can realistically meet the not only the cost of the mortgage, but also of home upkeep, utilities and taxes.

Explore Your Options With the Help of a North Texas Family Law Attorney

If you, your former partner and your respective family law attorneys cannot come to an agreement about what to do with the equity in the marital home, a court will decide for you. But, it is almost always faster, cheaper and better for everyone involved if a settlement can be reached.

While distributing home equity after divorce is never simple, it does provide opportunities for creativity and compromise. Whether you want to keep your house or just get your share of its equity transformed into a more liquid asset, an experienced family law attorney can help create solutions that work for you. Talk to a family law attorney today to learn more.