Spouses accrue equity by making a down payment when purchasing real property and paying their mortgages on time. A percentage of each month’s payment goes toward the principal balance due rather than accumulated interest.
People also accumulate equity by improving the condition of new homes through repairs, remodeling and renovations. Many homeowners prioritize maintaining and improving their homes ahead of many other expenses.
The value of a home is often the single greatest source of personal wealth for individuals. They usually share their equity with their spouses, unless they have a marital contract stating the home is separate property. How do spouses handle home equity when they divorce?
There are many solutions available
Factors, including whether the spouses can afford the home on their own and whether they share responsibility for minor children, may influence decisions about who lives in the marital home after a divorce. Frequently, the spouse who retains the home refinances to withdraw equity and compensate the other spouse.
However, spouses can also use other assets to offset the value of home equity. They can also agree to sell the home and split the proceeds. Any of these arrangements can lead to a reasonable and fair distribution of one of the largest assets in the marital estate. Couples have the option of negotiating with one another to set their own terms, but they can also go to court and have a judge decide what should happen to their property.
Establishing goals for key resources can make it easier for people to manage property division negotiations. Homeowners may need to think about what outcome they prefer when addressing their accumulated equity and other valuable marital property.
