Updated: Oct 14, 2022
During a divorce, property must be divided in a just and right manner. In a Community Property state (California and Texas are examples), this means all property acquired by either spouse during the marriage stands to be divided. Even if the couple never legally married – same-sex couples or opposite-sex couples – each party may have an equity claim to residential property. Exceptions generally are made for property inherited by one person or gifted specifically to one person.
The Court looks at the whole picture to determine who gets what … and often the personal residence is the largest asset. Ask your divorce mortgage specialist to order an appraisal right away. Paying for an appraisal independently is wasting your money as the only appraisal a lender can use is one it ordered through its Appraisal Management Company (AMC). Why is that? Because if you bring in an appraisal your soon-to-be ex ordered or had her attorney order, that appraiser could be your soon-to-be ex’s brother or the lawyer’s boyfriend or someone else with an interest in the house’s valuation. An appraisal that comes out of an AMC is deemed an unbiased, third-party assessment of the property’s current value.
Once you know what the home is worth, calculating equity is the most important task and it’s not as simple as just deducting the mortgage balance from the appraised value.
If one party intends to keep the home, s/he will likely be ordered to refinance it into his/her own name individually, removing the other party from any liability. The cost of refinancing should be deducted along with the mortgage balance. If there are taxes owed or liens on the property, it could be argued those should be paid PRIOR to calculating total equity. And even if one party owned the property prior to the commencement of the relationship, if the other person moved in and paid a disproportionate share of the upkeep, that person may still be awarded a share of equity (or even the house!).
Finally, selling the home and splitting the proceeds may be an option to consider … but in the equity calculation, keep in mind the seller(s) normally pay up to 6% in commissions. Often the “equity buy out” to a departing spouse/partner yields a higher dollar value when there is a refinance instead of a sale.