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3 things people should know about home equity in a divorce

On Behalf of | Jun 4, 2024 | Divorce

For many people, the home where they live is a source of financial stability. They know that they can draw on their home equity in an emergency. They also likely intend to leave that value to their loved ones when they die.

Clearly, home equity is a key contributor to someone’s overall personal wealth. It is only natural then that many people worry about what may happen with their homes when they divorce. People may have equity accumulated through a down payment and years of monthly mortgage payments. They may also have sweat equity that they earned by making repairs and improvements to the property.

What do people typically need to know about their home equity when they prepare for divorce proceedings?

Equity is usually marital property

Some people already own homes before they get married and negotiate clear prenuptial agreements to protect their houses. Most people acquire homes while married or use marital resources to pay for and maintain their homes. Therefore, the equity accrued in the property is a part of the marital estate. It is subject to equitable division when people divorce.

Possession is not synonymous with ownership rights

People frequently spread the urban legend that anyone who moves out of the marital home forfeits their interest in the property in a divorce. That would be incredibly unfair if it were true. Although sometimes leaving a property can lead to claims of abandonment if someone does not make financial contributions toward the home, such situations are rare. The decision to move to a new residence to minimize conflict does not eliminate someone’s financial interest in their marital home.

People can divide equity without withdrawing equity

Refinancing after a divorce is often necessary if only to remove one spouse from the title of the property and note for the mortgage. Oftentimes, people choose to cash out equity to give their spouse a share of the home’s value in the divorce. Doing so is not necessary in every case. Many couples have other assets that they can use to balance out the home equity someone loses when their spouse retains possession of the marital home. The allocation of debts during the divorce can contribute to that equation. The goal is a fair outcome based on the totality of the marital estate. There is no requirement to divide each resource in half.

People who know what to expect during complex property division proceedings can make choices that work for them throughout the divorce. Learning about the truth behind common divorce myths can empower people to handle the process in truly informed ways.

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