OUR HOUSE, IN THE MIDDLE OF OUR STREET: DIVIDING HOME EQUITY IN A DIVORCE

A home is typically one of the largest, if not the largest, asset in a marriage. At the same time, it is often an asset that is steeped in emotion: perhaps you’ve lived there for decades; maybe you raised kids there. Because of this, what happens to a couple’s home is often the source of much disagreement.

It is important to remember that home equity can have both a marital and a non-marital component. If one of you owned the house before you got married, that person (may have a non-marital claim to some of the equity. Similarly, using non-marital assets to put a down payment on a home, such as when one (or both) of you sells a pre-marital home to purchase a new marital home, can create a non-marital interest. Once the portion of the equity each spouse is to receive is calculated, there are several ways in which division of the equity can be handled:

1. Selling the Home: This is a straightforward approach in which the parties place the home on the market and split the net proceeds of the sale. In some ways, this is the simplest solution as there is no argument over what the home is worth; its value is determined by the market. Still, there are details, such as how bills for the home will be paid until sale, that must be agreed upon.

2. A Buyout: When one of the parties wishes to stay in the marital home, he or she will usually buy out the other spouse’s interest. This may not always be possible as doing so generally requires that the spouse awarded the home be able to get a mortgage solely in his or her name. If you are thinking about a buyout, you should have a discussion with your mortgage provider sooner rather than later. In most cases, the parties agree that if a mortgage cannot be secured within a certain period of time, the property will be placed for sale.

3. A Marital Lien: Sometimes the parties agree that one spouse should be awarded the home, but there may not be sufficient assets in the marriage to allow an immediate buyout. Another common use of a marital lien is when one spouse wants to stay in the home for only a limited time, such as until the couple’s children graduate high school. In such cases, the other spouse may be awarded a marital lien, in which he or she has a security interest in the home. If one party agrees to take a marital lien, the details must be carefully drafted. You should address such things as what will occur if the party being awarded the home falls behind on the mortgage and whether interest will be paid for the duration of the lien.

4. Joint Ownership: This is far from an ideal solution as you will need to continue to work together on issues regarding the home. Even if you are on good terms now, this may be difficult if the relationship sours.

To explore your options regarding dividing the equity in your home, or for any questions regarding divorce, call Kruse Family Law, PLLC, at 612.231.9865, or email corwin@krusefamilylaw.com.