A House Divided: Allocating Home Equity in Divorce
For many divorcing couples, one of the most valuable assets they have is the equity in their home. Regardless of whether the home is to be sold, or awarded to one of the spouses, the question of how such equity is to be divided must be answered. Complicating this issue is the fact that one or both of the spouses may have contributed non-marital funds to the purchase of the home.
When both marital and non-marital interests in a home exist, the Court employs the Schmitz formula (called this because it was first set forth in the Schmitz v. Schmitz case) to determine the marital and non-marital portions of the equity. The basic process is fairly straightforward: the Court determines the percentage of non-marital equity in the home at the time of marriage or purchase, whichever is later; it then carries this percentage forward and applies it to the value of the home at the at the date of valuation for the divorce.
For example, assume that a newly-married couple purchases a home for $100,000 and that one of the spouses puts down $10,000 of his or her own, non-marital, funds as a down-payment. This gives that spouse an initial non-marital interest of 10%. Now, assume that at the time of divorce, the value of the home has increased to $150,000 and that the equity in the home is $20,000. To calculate the non-marital interest, the Court would multiply $150,000 by 10% (or .10), giving non-marital equity of $15,000. The remaining $5,000 in equity would be marital and divided between the parties.
This, of course, is a simple example and things are rarely so clear-cut in the real world. The calculation of marital and non-marital can be complicated by such things as taking out a home equity loan or making improvements to the home.
To discuss the division of home equity in your case, email Kruse Family Law at email@example.com or call us at 612.231.9865.