Most homeowners spend about three decades paying off their mortgages. In some cases, people take on a 15-year mortgage or ensure that they do not have a prepayment penalty and pay down the mortgage much more quickly.
Married couples are often able to qualify for larger mortgages to afford more comfortable homes by combining their incomes and credit scores. They may also work together to repair, update or expand their homes. If homeowning couples decide to divorce, their shared equity can easily become a point of contention during that process.
Typically, each spouse has the right to an equitable share of the marital estate. That includes a fair portion of the home equity. How do people share equity when they decide to divorce?
Establishing the amount of accrued equity
The first step towards sharing home equity fairly is to identify how much equity spouses have accumulated during the marriage. For many couples, working with a real estate professional is part of that process.
What they paid for the home is likely no longer a reasonable representation of what the property is worth. They need to have an appraisal performed or have a real estate agent look at the sale of comparable parties in recent months to determine what the property is worth.
From there, they can look at the balance out on their mortgage and any second mortgage or home equity line of credit they may have taken out to calculate the equity they must split.
Finding reasonable ways to offset equity
Sharing home equity can be difficult, in part because withdrawing equity immediately may not be a realistic solution. Some couples have other assets that they can use to balance out equity during property division negotiations. Marital debts can also play an important role in the process of negotiating fair and equitable solutions for high-value assets like home equity.
Occasionally, neither spouse wants to retain the marital home or has the income to do so on their own. In such scenarios, spouses may decide to share their accrued equity by selling the home and dividing the funds generated from the sale in a specific manner.
People often need to remain flexible when addressing high-value assets during property division negotiations. Willingness to compromise can often lead to better outcomes than insistence on specific terms.