Signing divorce papers ends a marriage, but there’s still more to do. You and your ex-spouse need to split the assets, specifically the property or home you shared. There are two ways to go about this. Either you and your ex-spouse work out an agreement together, or you go to court, where a judge decides for you both. When trying to sort out a property, several factors can change how a split is decided, such as when the home was purchased and who pays the mortgage. Dividing marital property is an effort to be fair to both parties.
Division of a property purchased before the marriage
A person’s marital state at the time of a home purchase makes a big difference. A person who owns their own home before getting married is likely to keep the home in a divorce, but a number of factors play into this. A home purchased before marriage, or a separate home (as opposed to a community home), is a home with one name on the deed.
These homes are unlikely to be subject to a division. This case is stronger with a prenuptial or postnuptial agreement outlining how to handle the home in the event of divorce.
Homes tend to increase in value after they’re purchased. This added value is subject to division, even when the home was purchased before the marriage. There are two ways a home increases value. Passive value is when the home appreciates due to the natural currents of the housing market. Active value is when the owner improves the home’s value through specific actions, such as renovations and improvements.
It’s common for a ruling to split the equity gained on the home between the married party, starting when they were married. If the spouse paid into the home after marriage, the home may be treated as community property and divided up based on how much each spouse paid into the home. As a rule, the property would stay with the person who bought it.
When it comes to the division of marital property, many states prefer to split it down the middle. Equity divides 50/50 if the home gains equity after the marriage, regardless of who paid into it. Other states tend to rule based on a variety of factors, including the length of the marriage, each spouse’s separate property, the age and health of each party, their earning capacities, education, and skills, children, and whether there are obligations that inform the court towards an equitable solution.
The three main factors that decide a marital property division
When splitting up marital property, three factors will determine the division. These factors are the type of divorce, property owned, and the state you live in.
The two most common types of divorce are uncontested and contested divorces. In an uncontested divorce, both parties agree on all terms, then file the divorce with the court. Contested divorces are when parties do not agree, and the matter goes to court. Neither party can agree to a division in a contested divorce, so the judge will do so for them. They will consider which party wants the home (perhaps they both do), their goal for the home and if they have solid reasons for keeping the home (such as raising a family within it). A judge will consider both parties’ financial capabilities. If one party can afford to buy the other out, a judge will likely rule in that direction.
A community property (something purchased or given to you while married) is likely to be split 50/50. If a home were a separate purchase before the marriage, it would depend on the state, but usually, the home’s equity splits between the parties, and the home itself remains with the person who bought it. A home is considered a stable environment for children, and a judge may grant the home to whichever parent has spent the most time raising the children. This is because courts put a strong emphasis on the child’s well-being.
The state you live in makes a big difference. Community property states will divide marital property 50/50 and allow individuals to keep their separate property to themselves. Other states opt for equitable distribution, which takes earnings, assets, and property, and divides them equitably or fairly. This doesn’t always mean it’s an equal split. A court may grant a percentage of the property to one party, even if the home was a separate purchase.
Who decides which party gets the house in a divorce?
You have two options when it comes to dividing property. You can choose to work out an agreement with your ex-spouse, or you can let the judge decide. It’s not common for couples to agree. If they don’t, there are other options aside from court. Arbitration or mediation may be cheaper to get both parties to reach an agreement. Should that prove not to be an option, then a judge will ultimately decide the fate of the marital property based on numerous factors. These can include financial stability, children, intentions toward the home, and all the money that goes into the home.
What factors does the court consider when deciding who gets the house?
The intention towards the home is the first factor a judge will consider. If one party intends to move and another wants to stay, the judge will likely grant the property to the party who wants to stay (with or without a buyout, depending on the financial details). If neither wants to keep the house, it becomes a matter of selling it fairly.
If both parties want to keep the home, the judge will consider financial stability and children. If one spouse can afford to buy out the other, the odds are high that they’ll get the house for simple logistics. If both parties can afford to do this, odds are the judge will grant the home to the parent who spends the most time raising the children.
Options for your home during a divorce
There are many options for marital property in a divorce. The cleanest option is to sell the home. The home is converted directly into cash, which splits among both parties, either in a way they agree upon or by a judge.
If one person keeps the home, they may have to buy the other out. Usually, they will need to refinance the house, so all the bills are in their name alone. They usually include the buyout in the refinancing costs, so the money owed is settled immediately. Refinancing a home requires the new sole owner to be approved and lowers the mortgage payments for the spouse staying in the house.
If you don’t want to go through financing a home again, you can ask for a buyout. This gives you a clean break, but your ex-spouse will keep the house. Buyouts are based on equity and market values, so it’s riskier than simply selling the home.
What to keep in mind
If you’re considering staying in the house, you want to ask yourself whether you’re really in a position to buy it. It’s not simply the mortgage payments but also the repairs, maintenance, and taxes. Do you need the home in terms of a secure environment for children? Has the house been in the family for a long time, and therefore has large sentimental value? You will need to ensure that you’re qualified for a mortgage and know what you can and cannot afford.
The home’s value is important to ascertain, and that can be quite fluid based on the market and an appraisal of the home. Unlike a savings account, the home has numerous pieces that must be in good working order. The home will need an appraisal by a licensed, professional third party, who looks for any damages or concerns. This is exactly what you would have done before purchasing the home when you first considered it.
Another factor in the value of the house is equity. Equity is an appraised value minus the amount still owed on a mortgage. The equity helps determine what you’d receive if you sold the home. Your home will be considered based on fair market value, which means what someone would reasonably pay for the home in its current state at that time.
Before you agree to your home’s value, ensure you’ve had it thoroughly inspected by appropriate parties, just as you would if it were a purchase. You want to go into any discussions on the home’s value with an appraiser’s opinions and a real estate agent’s opinion on the home’s value. This will prevent you from being blindsided by any deferred maintenance – problems within the home that require a fix.
Liens and foreclosures stay with the property, not the individual who takes possession of the home. If your ex defaulted on a credit card payment, and the creditors put a lien on the home before you took possession, that lien is now your problem.
The impact of divorce on your home insurance
A divorce can potentially affect your home insurance in a few ways. Here are some possible scenarios:
Change in ownership or occupancy: If the divorce involves one spouse leaving home, the change in ownership or occupancy may impact your home insurance. You may need to update your policy to reflect the new ownership structure or change the named insured on the policy.
Change in liability coverage: If one spouse moves out of the home, they may want to remove themselves from the liability coverage of the home insurance policy. This can be done by adjusting the policy to exclude that spouse from the coverage. However, it’s important to consider the potential implications of removing someone from liability coverage, especially if they have financial interest or liability exposure related to the property.
Property division: During a divorce, property division could involve the division of personal belongings, including valuable items in the home. Reviewing your home insurance policy to ensure that your coverage still adequately protects the remaining belongings after the property division is important. You may need to update your policy or purchase additional coverage if necessary.
Change in insurance costs: Divorce can result in changes to your financial situation, including changes in income or the need to manage expenses differently. Changes in the coverage requirements or if you need to find a new insurance policy can impact your insurance costs. It’s advisable to shop around and compare quotes from different insurance providers to ensure you’re getting the best coverage at an affordable price.
It’s essential to communicate with your insurance provider during the divorce process to discuss any changes or updates needed for your home insurance policy. They can guide you through the necessary adjustments and help ensure that you maintain adequate coverage for your home and belongings.
Frequently asked questions
How is property divided after a divorce?
A home is divided equitably (fairly) between two spouses. This doesn’t mean it is split equally. Instead, a court considers each party’s debts, incomes, and unique situations.
What does equitable distribution mean?
Equitable distribution is another way of saying a fair distribution. A court considers debts, incomes, and situations for both parties, then divides the marital property based on what the judge rules is fair or equitable.
What property can be divided in the divorce?
Community property (sometimes called marital property) can be divided in divorce. Separate property (property owned before the marriage, with one person’s name on the deed) is usually not divided.
Can separate property become marital property?
If one person in the couple gains an inheritance in their name before they’re married, and they use that inheritance to purchase a home after they are married, that separate money has been used to fund a marital property.
What happens if the value of my separate property goes up during my marriage?
If your ex-spouse helped to improve the property, and those actions increased the value of the home, they may be entitled to their share of that value increase.
How does the court determine what is equitable?
The court will look at the length of the marriage and the age and health of both parties. They will consider the income and property of each spouse when they were married and whether there are children. The court considers if one party requires the property for the children’s needs and both spouses’ efforts to upkeep the property.
Who is responsible for debts?
If you and your ex-spouse co-signed for a home, and your spouse does not make the payments, you can be held accountable for them. This is why it’s good practice to have the home refinanced in your name alone. A judge determines who is liable for debts in a divorce.
What are exclusive occupancy rights?
When a party is granted exclusive occupancy rights, that party is solely allowed to live in the home, and the other party must move. Moving will be tense in a situation like this, and it’s good practice to hire movers rather than use friends and family.
Provide a safe environment for your kids during a divorce
It takes a lot of work and willpower to provide a safe environment for your children during a divorce. Tension is high, but usually, both parties want to keep the children out of it as much as possible.
A calm disagreement is one thing, but if either party devolves into yelling or screaming at the other, this harms the children. Children who go through a divorce tend to be better off if they don’t hear their parents scream at each other.
It can be challenging to ensure the child has access to both parents, especially when fighting is at its worst. It’s essential for a child’s well-being not to lose access to a good parent throughout the divorce and beyond. You also never want to make a child choose which parent to stay with. This forces them to declare love for one parent over another and potentially betray the other parent. This is not an emotionally healthy situation to place a child in.
You’ll want to keep your kids uninformed regarding the divorce’s issues. Do not confide in them. It puts undue pressure on them, and they may not understand the nuances of understanding a situation from both sides. You don’t want to use your children as a weapon. Stay focused on the big picture rather than dissect each other’s parenting skills.
Remember that what is fair to a parent isn’t always fair to a child. You want your children to come first, and to do that, you’ll have to consider what’s fair to them for a divorce outcome. Consider where they will live and if they have to change their lives due to a decision. That may be fair for the parents, but for the children, it’s a significant change they didn’t ask for.
Most children in a divorce do well so long as exposure to chronic fighting is kept to a minimum.
Divorce is rarely easy to go through, and splitting up a home or other marital property can be challenging. It’s easy to be emotional and to attach those emotions to how you want to divorce to settle. If you and your ex-spouse can’t agree, consider arbitration to help you find common ground. Trust professionals, as they hold no emotional stake in the outcome. Knowledge is beneficial going into a divorce, and seeking help is crucial if you need someone to talk to. Any judge or arbitrator will side with logic over emotion, so try to do the same when considering your assets.