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Dividing Equity in Divorce: Strategies for a Fair Settlement

May 8, 2023 by Milstein Siegel

property division conceptOne of the most pressing questions in a divorce is who will get to keep the property the couple owned. For many couples, agreeing to split assets and debts is preferable to having a judge decide for you. Not only can negotiating divorce equity early help keep costs down, but it can also improve your chances of reaching an agreeable outcome for both parties.

Here’s a look at some strategies for arriving at a fair settlement when attempting to divide equity in a divorce.

Marital Property Versus Separate Property

Before determining the division of assets, it is important to understand how your state treats marital property and separate property. In states like Maryland, only marital property is subjected to an equitable division in a divorce.

Each spouse can keep their separate property, which includes assets they owned before getting married, inherited property, or gifts that were given to them alone.

Marital property, meanwhile, is a property that was acquired during the marriage. Some types of property may be difficult to classify, such as when separate and marital funds are commingled in a bank account or when the funds of a joint bank account are used to cover the mortgage payments or improvements to a home that just one of the spouses owned before the marriage. In these cases, the division of property can be more complicated.

Equitable Division

Many states use an equitable division rather than an equal one, allowing a judge to divide the property in a way that they believe to be fair under the circumstances of the case. This is not always a 50/50 split.

divorce conceptWhen dividing equity in a divorce, it is helpful to use some of the same considerations a judge would weigh to ensure fairness.

These include the couple’s overall debt; the economic circumstances, health, and age of the spouses; whether one of the pouses wasted any marital assets; the tax repercussions of property division; and whether one of the spouses contributed to the other’s education or supported their career by dropping out of the workforce to take care of their children.

Dividing Home Equity

There are three main approaches to dividing the equity in a home, and they all begin with an appraisal to determine its current value. It is recommended that each spouse obtains their appraisal to ensure fairness and protect both sides, even if the divorce is amicable. Once you agree on the value of the home, subtract the amount that you owe on it to determine the equity.

Here is a closer look at the options you have for fairly dividing your home equity.

Selling the Home and Splitting the Proceeds

The most straightforward way to divide a home’s equity is by selling the house; paying off the mortgage, taxes, and any sales-related expenses; and then splitting whatever money remains. This also makes it easier for two former spouses to make a clean break from one another.

Letting One Spouse Keep the Home

If one spouse wishes to keep the home, refinancing the mortgage is a good way to transfer sole ownership to them. This not only removes the other spouse from the mortgage, thereby making sure the home is an individual asset rather than a joint one.

It also serves to pay off outstanding mortgage debt and free up cash so the spouse can purchase the other spouse’s share of the equity. However, it is important to keep in mind that the newly divorced spouse will have to qualify for the refinance based on just one income.

Keeping the Home Between the Spouses

In some cases, selling the home is not a good option. This may occur when the couple owes more on the home than it is worth, prevailing market conditions mean it is not a good moment to sell, or the spouses cannot afford to purchase separate homes. In many cases, a couple may choose to keep a home under joint ownership because of their children.

A Deferred Sale

Some couples may opt to continue co-owning their house after the divorce is finalized for a certain period if their finances allow it. This may occur when, for example, one parent is taking primary physical custody of the children and wishes to provide them with the stability of remaining in their family home. This might also allow them to continue going to school in their current school district.

If you are considering this type of arrangement, a family law attorney can help you address the potential risks involved in your agreement.

Reach Out to the Maryland Family Law Attorneys at Milstein Siegel

To learn more about dividing equity in divorce and other matters related to the division of property and assets, contact the experienced family law attorneys at Milstein Siegel today. We offer creative solutions that enable our clients to protect their financial future, whether you need support in mediation or guidance through the court system.

Disclaimer

Milstein Siegel provides advice and representation to its clients solely under the laws of the State of Maryland.

Filed Under: Divorce

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