How to figure home equity in a divorce
Deciding who gets to keep the home is one of the biggest questions many divorcing couples have to answer.
Part of the challenge is figuring out how much equity they have in the home--the part of the house that they own free of debt--so a couple can weigh the equity with the other marital assets they're dividing. Calculating equity is only one of several steps in deciding what to do with the house, however.
Find out how much your home is worth. Ask your local real-estate agent what the selling price of homes in your neighbourhood has been recently to get an approximation of your home's worth. For a more authoritative estimate, hire an appraiser. It will cost several hundred dollars, the Lending Tree website states, but an appaiser provides a figure the divorce court probably will accept as valid.
Calculate how much equity you have. Add up all the debt secured by a lien, or claim, on your house, which could include a first mortgage, home equity loan and home equity line of credit. Subtract that total from the appraised value of the home. The result is the equity you and your spouse have in your home.
Determine whether the equity is marital or non-marital. Non-marital assets don't have to be divided between spouses according to the laws of their state, the Divorce HQ website states. In Minnesota, for example, if you bought the house before marriage, the equity is yours. If you paid off part of the mortgage during the marriage, however, or if the home appreciated in value, some of the equity may belong to your spouse.
Work out with your spouse what you'll do with the equity. Some couples simply sell the house and split the proceeds based on the division of equity, the Expert Law website states. Other couples agree to have one spouse refinance the mortgage in her name, removing her husband's legal liability for the mortgage debt. If the homeowner can't find a lender willing to refinance or simply fails to take out the new mortgage, however, this leaves the other spouse potentially liable for the mortgage on a house he no longer owns.
Divorcing couples often use a quitclaim deed to eliminate one spouse's claim to the house. A quitclaim deed transfers title, but does not eliminate legal responsibility for the mortgage.