Rebuilding after a divorce takes time. People have to cover the cost of the divorce itself, heal from the trauma of a failed marriage and begin rebuilding their personal wealth after dividing their property. Preserving as much as possible of the marital estate is a common goal during divorce. People want to retain assets that can help them maintain a reasonable standard of living after they divorce.
For many couples, their home equity is a major contributor to their overall net worth. Spouses often disagree about how much their home is worth or who should stay there. They may also have a hard time resolving disagreements about sharing accrued home equity.
What are some of the possible solutions for couples with shared home equity when they divorce?
Refinancing to withdraw equity
Typically, the spouse staying in the marital home has to refinance to take on the mortgage in just their name. When they acquire a new mortgage, they may also cash out some of the equity.
They can use those funds to compensate their spouse for their share of the home equity. This solution may increase how long it takes to pay off the mortgage as well as increase the monthly payments.
Selling the home
Sometimes, the spouses haven’t accumulated much equity at all. They may not have much emotional attachment to the property either.
In such scenarios, selling the home might be a reasonable means of sharing the value of the home. The spouses can agree to a particular division of the proceeds from the home sale as part of the overall property division settlement.
Making compromises in other areas
Sometimes, one spouse intends to stay in the home but cannot afford to use home equity to compensate the other. In such scenarios, they may need to evaluate the overall marital estate and identify other assets that can serve to offset the value of the home when they divorce. Resources ranging from automobiles to retirement savings can effectively balance out the retention of the marital home.
There may be other solutions available as well depending on a family’s circumstances. Understanding the most common solutions for addressing key resources can be beneficial for those preparing for complex divorces with valuable assets. Home equity often requires careful consideration during a divorce.
