Equity in a home may be a married couple’s biggest asset. Before deciding what to do with the marital home in a divorce, you must find out how much that equity is and what the home would probably sell for if it was put on the market. Get professional help for this task. There is too much at stake to try to come up with some figures after a couple of hours of internet research.
Why Does This Matter?
The assets and debts of married couples are equitably divided in Pennsylvania divorce proceedings. If the couple has a house and a mortgage, who gets what is an essential part of the process. That starts with determining the home’s value and how much equity each party has.
The home is usually a significant component of the overall agreement of how assets and debts are divided. If the parties cannot agree, assets and debts can be divided by a judge after a trial. This is the most time and resource-consuming way to resolve the issue, which is why it is the route of last resort if the parties cannot agree.
This does not matter if the house is not marital property subject to division. It may have been owned by one spouse before marriage, though the other spouse may make a claim to its increase in value since the marriage began.
The parties may also have a premarital or prenuptial agreement spelling out who will get the home in case there is a divorce or a formula to determine an amount. A prenup may also spell out the amount that one needs to pay to buy out the other’s interest.
Another option is selling the house. After the mortgage, liens, taxes, and costs are paid, the profit left over is part of the cash the two of you will divide.
What is Home Equity?
Appraised Value – (Balance of Mortgages + Liens) = Home Equity
The higher the appraised value and the lower the balances for your mortgage and liens (if you have any), the more home equity you have. The two of you should agree on a professional appraiser to determine the appraised value. Each of you could hire your own, and the result may or may not differ, but no matter the outcome, the cost is double that of just hiring one.
Avoid a do-it-yourself appraisal. Unless you are a trained professional, you do not know what you are doing. Properties you think are comparable may not be, and you may miss properties that genuinely are similar. This approach could cost you far more than the money you save by not hiring an appraiser. If you are buying out your spouse, you may come up with an inaccurate value that is too high, or if you are the one receiving money or other assets, your figure may be too low.
The spouse buying out the other should hire a home inspector. That extra pair of educated eyes could find hidden problems impacting the value. It is better to learn about them sooner than later.
How Will I Pay to Purchase My Spouse’s Interest in the House?
There are different options. If none are feasible, you will not be able to buy your spouse out. As much as you may want to keep the house, if you can not afford it, you must move on.
The simplest way is to pay cash, but not many people have that much in reserve. You could refinance the mortgage, but interest rates are up, and qualifying may be difficult. You would pay off the existing mortgage balance through the refinance and use the equity to pay the other spouse. If your application is accepted, your monthly payment may be more than what you pay now.
Another option might be that the other party will accept payments over time, and the property title changes after the last one is made. This will require a written contract, and both sides will want to protect their interests if, in the future, the paying party cannot afford full payments or complete the deal within the specified time frame.
Because all marital assets are subject to equitable division, one way to buy out your spouse is to transfer or give up your claims to other assets. Read our blog article I Want to Buy My Spouse Out of the House for more information.
If you have any questions about what will happen with your home after a divorce or need legal representation, please contact us here at Karen Ann Ulmer, P.C. We can discuss how this may play out and how we can help you through the process.