Dividing Real Estate in a Divorce
Although divorce is difficult, it’s not uncommon. In fact, nearly 700,000 divorces happened in the United States in 2021. This difficulty can largely be attributed to a variety of factors that complicate the process such as child custody, finances, and real estate.
There is no size-fits-all solution for each factor, especially when it comes to splitting up real estate.
Whether you own one family home or a long list of rental properties, dividing real estate in a divorce isn’t simple. By learning about your options, however, you can meet a compromise with your ex-spouse that will ease the divorce process.
What State Do You Live In?
How you divide your assets, including real estate, depends on where you live. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin all govern the division of assets by community property laws.
These laws dictate that whatever assets and debts are acquired during a marriage are split evenly between the two individuals in the event of a divorce.
Each of these states approaches community property differently, so it is important to work with a qualified divorce lawyer and financial advisor when navigating the laws in your specific location.
What Type of Divorce Are You Getting?
Just like every relationship is different, the same rule can be applied to divorce. However, most divorces can be categorized into the following groups:
- Contested divorce: The individuals involved are not in agreement about major issues involved in the divorce, including real estate and other assets. These issues are decided through a much more lengthy process and the final decision is decided by a judge.
- Uncontested divorce: Both parties can agree on all major issues, including child custody and support, real estate, assets and debts, and other issues. The real estate owned by the couple is divided in a way that is agreed upon by both individuals.
If a couple cannot come to a fair agreement on their own, a judge or court will decide how assets are divided.
What Else Do Courts Consider?
When determining a fair distribution of assets, the judge or court will consider:
- The length of the marriage: The longer the marriage is, the more likely a spouse with less income can win over assets.
- How much nonmarital property each spouse has: If you have more individual assets, the judge will be more likely to award the marital assets.
- The fault of the divorce: If the divorce is caused by infidelity or abuse, the judge may award the assets to the plaintiff.
- The needs of any children involved: Judges will typically reward a spouse in whatever benefits the children the most. For example, if one spouse spends more time homemaking or taking care of the children, they’ll typically receive more assets.
- The age, health, and income of both spouses: If one spouse is older, sicker, or earns less money, they will typically receive asset rights.
No matter the factor, all judges and courts make their decision based on their concept of fairness and equality.
How Can Real Estate Factor Be Divided?
While some financial assets, such as cash, are easy to divide between two people, others are not so simple. Real estate division, for example, has three main methods.
Choosing the right method depends entirely on the needs of you and your family.
Sell Property and Split the Proceeds
One way to divide real estate in a divorce is to sell the property and split the proceeds. This option is best if neither spouse can afford to purchase half of the property from the other.
When selling your property, factor in the following costs:
- House appraisal;
- Any property depreciation;
- Repairs that need to be made;
- The services of contractors, lawyers, realtors, and financial advisors.
Once the property is sold, and all associated costs are covered, the couple can divide the proceeds between themselves as previously decided in their divorce. Working with a realtor or a real estate lawyer can ensure that all involved parties are receiving a fair amount of the profit.
One Spouse Buys Out All Equity in the Property
If one spouse has the financial capability, they can buy out all of the equity in the property. Essentially, one spouse will be paid, and will no longer be an owner of the property in question.
Normally, the spouse who is buying the property arranges for a new mortgage loan that is only in their name. This loan should be large enough to cover the original loan amount and half of the equity that is then paid to the other spouse.
This arrangement can be beneficial when one of the involved parties is invested in keeping the home. For example, if the couple has children who live in the home, or if the home came to them from a family member.
Maintain Joint Ownership
Some couples choose to maintain joint ownership for a period of time after a divorce. One reason to do so is if one person is interested in buying out the other person, but needs time to arrange finances.
Another reason is in the event of the divorced couple raising children together. Maintaining joint ownership of the home may create a more stable environment for the children of the divorce.
Couples that maintain joint ownership of their home for their children often sell the house after their children are out of school. Until that point, the primary, custodial parent will live in the house with the children.
How Is the Value of Real Estate Assessed During a Divorce?
When dividing assets in a divorce, the value of the properties involved must be properly assessed. Some assessment methods include:
- Conducting a comparative market analysis to examine the sales performance of similar properties.
- Determining the passive income generated currently, and the income that may be generated in the future from properties owned by the couple. This is a vital consideration when looking at track record of rental properties owned by a divorcing couple.
There are several tools, resources, and professionals that couples can look to when trying to determine the value of their properties. For instance, there are online portals that allow individuals to view personalized performance reports and projected returns for their properties.
When To Seek Professional Guidance
Dividing assets in a divorce is not usually a simple process. This task can be made even more complicated if the divorce is heavily contested or if the couple owns multiple properties.
If you are currently in the process of getting divorced, working with a trusted financial advisor is a good way to make the process as smooth as possible. Financial advisors can help you and your spouse by providing valuable guidance and ensuring the fairest possible outcome for everyone involved.