If either you or your spouse wants to keep the house, refinancing is often necessary to “pay off” the other spouse.
Before you consider refinancing, you first need to know your share of the equity. Therefore, you must:
- value the house;
- subtract the outstanding mortgage balance; and
- calculate your share of the remaining equity.
Example: Sally and Tom own a house valued at $300,000, subject to a mortgage with an outstanding balance of $200,000. Therefore, the equity in the house is $100,000. If Sally and Tom split their assets 50-50, each would have $50,000 of equity. Note that not all couples split 50-50. See below.
How Do I Value the House?
If you agree to value, that amount should be included in your divorce settlement agreement.
Divorce Tip: Make sure you are certain that the value is fair, especially if your spouse is more knowledgeable about real estate and business.
If there is any disagreement or you have any misgivings, use an appraiser for a reliable, uncontroversial valuation. The $300 or $400 fee is well worth it when you consider that judges and lawyers place confidence in local certified appraisers with good reputations.
You can also look at the tax assessed value used for local property tax, but this “value” is often unreliable. Finally, if you interviewed real estate brokers with respect to a possible sale, they may have given you a good indication of value.
Divorce Tip: You and your spouse should select an appraiser or other professional. You will save time and money, especially if your case is contested. Some high conflict cases settle before trial when the marital home is no longer in dispute.
How Do I Know the Exact Mortgage Balance?
You can get a “payoff” amount from the lender. Don’t forget to include any second mortgages, equity lines of credit, or other encumbrances such as a lien relating to a business loan.
What is My Share of the Equity?
Your share depends on your state’s law, your judge, and your ability to negotiate. Factors vary, but may include whether the house was a premarital asset, whether it is covered by a prenuptial agreement, your contribution (financial and labor), the length of the marriage, the needs of the parties and their minor children, and whether you live in a community property or equitable distribution state. Laws vary dramatically by state, so be sure to obtain appropriate legal advice.
Divorce Tip: Couples who settle usually end up with more money faster.
Resources: See What Can I Afford?
