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What Happens to the Equity in our House if we get Divorced?

With the economy and the housing market much healthier now than in the recent past, more and more people now actually have equity in their houses – i.e. their houses are worth more than they owe on them.  This is a good thing.  However, it creates another issue that needs to be dealt with in the divorce.  Let’s examine how this works.

Let’s assume for a moment that your house was purchased during your marriage (we’ll talk in a moment about how things change if it was not) using marital funds.  If your house now is worth more than you owe on it, then it has equity, and that equity is a marital asset.  Thus, like any marital asset, it will need to be divided equitably as part of your divorce.

Dividing it equitably generally means 50/50.  But how is this actually done?  In one of two ways: either the house is listed for sale and the proceeds split evenly, or one party buys out the other person’s equity and keeps the house.  If both parties want to buy the other one out, then the parties may have to bid on the house to see who is willing to pay the other one more for it. 

Selling and splitting the proceeds of the house is pretty straightforward.  One party buying the other out, however, is a bit more complicated.  The party being bought out will not want his or her name to remain on the mortgage to the property (assuming there is still one), because he or she will not want to be on the hook if the mortgage doesn’t get paid.  Thus, the party buying out the other will generally be ordered to refinance the house into his or her sole name. 

This refinance often accomplishes a dual purpose: the party buying out the other can not only pay off the previous mortgage, but also often take out a new loan that provides the cash needed to buy out the other one’s interest in the property.  This is not the only way for one party to pay off the other one’s interest, however; if there are enough other assets in the marital estate, the buyout may be able to come from them, via a direct transfer/payment or an offset.

As we mentioned earlier, this process works a little differently if the house is not 100% a marital asset.  This most often occurs when the house was owned by one of the parties before the marriage.  In this scenario, the party who owned the house prior to the marriage can argue that a portion of the equity should be returned completely to him or her, as opposed to divided, in order to compensate that party for his or her pre-marital asset.

We can help you understand and weigh your options when it comes to what to do with your house – whether it has equity or not.  Give us a call at (734) 254-1140 to schedule a meeting over the phone or in our office.

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Our office always offer a free consultation. We will listen to you, explain your options, and move forward when you are ready.
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