Issues divorcing couples face with respect to the marital home and asset and liability distribution

Perhaps the biggest issue that most couples face when considering a separation or divorce is what to do with the marital residence.  Should they sell it and divide the equity (if any)? Or does one wish to remain in the residence and provide the other person with his/her share of equity in the form of a monetary payment or some other tradeoff?

To begin to answer these questions, the current value of the home needs to be established.  Often, the parties use the assessed value that appears on their property tax bill.  If they are willing to agree that this is the value they want to use, then they can move forward to the next issue.  However, the assessed value is often not the true value of a property and, if that becomes an issue, then an appraisal by a licensed appraiser is the more definitive way to go.  An appraisal will usually cost between $300 and $400. Some couples use appraisal websites to determine home value, though those numbers are not as certain as an actual appraisal.

Once the parties agree on the value of the property, they need to subtract the remaining loan balance(s) (e.g., mortgages, home equity lines of credit) and establish the potential equity that will be realized when the property is sold.  If their decision is to sell the property, the sum that remains after paying off the loan(s) (if any), the real estate agent, and all remaining costs associated with the property and its sale is the amount that is to be shared.  Often the shared amount is divided equally, but not always. The division of the equity will depend on a number of factors that vary from couple to couple.  These factors are discussed during mediation in order to determine what will work best for both parties. (A separate issue, to discuss a different day, is what to do when the remaining amount is a negative number, and the house is “underwater”.)

If one of the parties decides that he/she wants to remain in the marital residence, most of what is described above would apply except that the person staying in the marital residence would need to provide the other person’s his or her share of equity (and of course there would be no sale costs as there is no sale).  This is usually accomplished by creating a Distributive Award in accordance with Section 1041 of the Internal Revenue Code that permits an individual to transfer assets to his spouse tax free.

As is the case in all of the issues that are presented during mediation, the goal is to determine what will work best for the couples involved.

Need help with deciding how to deal with the marital residence during divorce? Contact Jerry Fabiano today.

Image source: Thomas McCord’s house “The Grange” built in 1819 from Musee McCord Museum in Flickr Commons.