How Is Home Equity Divided During a Divorce? What You Need to Know

Divorce is tough, especially when it comes to dividing assets. My friend Sarah called, her voice shaking. She was worried about losing the home she loved. The family home is hard enough to have to say goodbye to, but she was also worried about how the equity in the home was going to be split.

Splitting home equity feels like a maze. It's not just about the house; it's about years of financial and emotional ties. Knowing how home equity is divided in a divorce can change your financial future. In order to feel like you can begin to piece your life together, you have to make it through some tough things. We hope to help you with this part of it.

We'll look into property division, mortgages, and real estate during divorce. We'll see how courts view marital assets. We'll guide you to a fair split of your equity in a divorce.

In Texas, divorce and property division have their own rules. The Lone Star State follows community property laws. This affects how your home equity is split. We'll explain what this means for you and how it's different from other states.

Knowledge is power. Understanding home equity division helps you make informed decisions. It protects your financial interests during this tough time.

Key Takeaways

• Home equity is a major consideration in divorce property division
• Texas follows community property laws for asset division
• Accurate property valuation is crucial for fair equity distribution
• Options include selling, buyouts, or co-ownership arrangements
• Professional appraisals provide the most accurate home valuations
• Creative solutions can help both parties reach a satisfactory agreement
• Court intervention may be necessary if couples can't agree on equity division

How is equity split in a divorce calculated?

Let's look at the main factors in equity calculation during a divorce.

Defining home equity

Home equity is the difference between your home's value and what you owe on the mortgage. For instance, if your home is worth $300,000 and you owe $200,000, your equity is $100,000. This amount is crucial in divorce settlements. When you go to split the equity, you have to know what number to divide by 2 so each gets their fair share of the equity.

Factors affecting home equity

Several things can change home equity during a divorce:

• Market conditions and where the property is located
• Home improvements and renovations
• Mortgage payments made during the marriage
• Economic factors and local real estate trends

Importance of accurate property valuation

Getting the property value right is key for fair equity division. There are a few ways to determine the market value:

1. Professional appraisal by a licensed appraiser
2. Comparative market analysis by a real estate agent
3. Online estimators (less accurate but quick)
4. Estimating from the county tax assessor's opinion of market value

In community property states, home equity is split 50/50. But most states follow equitable distribution. This means the split is based on individual contributions. If spouses can't agree, a judge will decide.

"Home equity division is a critical part of divorce settlements, especially considering that the family home is commonly the most valuable asset."

There are ways to handle home equity, like one spouse buying out the other or selling the house. Some couples might get a home equity loan to get cash without selling. Whatever the choice, accurate valuation and careful thought are essential for a fair outcome.

According to Investopedia, "Real estate valuation takes into account location, lot size, floor plan, and amenities, among other qualities."

When determining how much equity is in the home, if you use the county tax assessors' opinion of the property value, be careful. Sometimes the county appraisal value used to determine property tax is lower than the true value. But, it could be higher than the market value. This did not used to be the case, but we have seen more and more cases where the tax value is way over the true market value.

How is home equity split in a divorce in Texas?

In Texas, the marital home is seen as community property. This means its equity is usually split 50/50 between spouses, but a spouse may have paid in more and can be determined to receive more by the court. The Texas Family Code helps make sure assets are divided fairly.

Community Property Laws

Texas follows community property laws. This means most assets gained during marriage belong to both spouses.

According to the Texas State Law Library, "Texas is one of nine states that is a community property jurisdiction. In general, this means that any property acquired by a couple during their marriage (with a few exceptions) is equally owned by both spouses. This can have a profound effect on the dissolution of property during divorce proceedings. The first page of this guide will provide you with a general overview of community property law in Texas. Subsequent pages will provide information on more specific topics such as debt and property division in a divorce."

Equitable Distribution Principles

Even though equal division is the goal, Texas courts can adjust it. They consider things like income and child custody. These factors can change how home equity is split.

While deciding to stay in the home or if a spouse wants to keep the home, it's best to talk to a divorce attorney as this is outside the scope of this article.

Separate vs. Marital Property

In Texas divorces, it's important to know the difference between separate and marital property. Separate property, like assets owned before marriage, stays with the original owner. Home equity is usually seen as marital property unless proven otherwise.

If you owned a house before you got married, this is separate property. Your spouse will likely not receive any of the equity in this house.

Texas-Specific Settlement Options

Couples in Texas divorces have a few ways to handle home equity:

• Sell the home and split the money
• One spouse buys out the other's share
• Keep the family home, co-owning with a deferred sale

The choice depends on many things. These include children's needs, financial situations, and the real estate market. Sometimes, an Owelty lien is used to divide home equity, allowing one party to refinance and buy out the other's share.

One spouse may be given the home in the divorce because the children will live there with them.

How is equity paid out in a divorce?

Divorce settlements often involve dividing home equity, a complex process. In Texas, a common law state, both spouses have equal rights to the equity in their primary residence. Equity is the home's value minus the mortgage, and it can be split in various ways during a divorce.

One common method is a buyout. Here, one spouse keeps the house and pays the other their share of equity. This might involve refinancing or using a cash-out refinance to get funds. For example, if a couple splits a $400,000 home with a $360,000 mortgage, they could divide $40,000 in equity 50/50, with each getting $20,000.

In Texas, an Owelty lien is a useful tool for dividing equity. It allows access to up to 95% of a property's value, unlike the 80% limit under Texas Home Equity laws. This can lead to better terms and lower rates for the spouse keeping the house. Owelty liens are also useful in inheritance cases, allowing siblings to cash out their interests while one takes sole ownership.

Other options include selling the property and splitting the proceeds or using a quitclaim deed to transfer ownership. Some couples choose creative solutions like sale-leaseback arrangements. It's important to consider tax implications, closing costs, and each spouse's ability to qualify for new financing. Working with experts like Service First Mortgage can help navigate these complex decisions and ensure a fair asset division in your divorce settlement.

If you have a house you are splitting the equity in, consider a cash offer from a house buying company like Danny Buys Houses. We buy houses as is and pay cash. This option allows you to sell quickly, which is usually preferred in messy divorces. If you want to move through this as fast as possible and get on with your life, give us a call. We would love to help you.

If you still have questions, we have answers! Here are some of the most common questions we get related to what happens to home equity in divorce.

Q: How is home equity divided during a divorce?

A: Home equity is usually divided based on the equity share each spouse has in the marital home. This involves determining the value of the home at the time of the divorce and subtracting any outstanding mortgage balance to calculate the amount of equity available for division.

Q: What factors determine the value of the home in a divorce?

A: The value of the home is typically determined by a professional appraisal, taking into consideration the current real estate market, the condition of the home, and comparable sales in the area. This value is crucial for splitting equity in divorce.

Q: Can I keep the house in a divorce?

A: Yes, one spouse may be awarded the marital home during the divorce process. However, this often requires refinancing the home to remove the other spouse's name from the mortgage and to ensure that the equity is appropriately divided. There might be the possibility of assuming the existing mortgage in divorce.

Q: What happens if we decide to sell the house and split the proceeds?

A: If you choose to sell the house and split the proceeds, the equity will be calculated by subtracting any mortgage balance from the sale price. The remaining amount will be divided as per the divorce agreement.

Q: How can we divide home equity if we are going through a divorce?

A: To divide home equity, both parties need to agree on the value of the home and the outstanding mortgage. Once these figures are established, the equity can be split according to the divorce agreement or negotiated terms.

Q: What is considered home equity in a divorce?

A: Home equity in a divorce refers to the difference between the current market value of the home and the remaining mortgage balance. This is the amount available for division between spouses.

Q: Do we need a certified divorce financial analyst to help with the division of home equity?

A: While not necessary, hiring a certified divorce financial analyst can be beneficial. They can provide expertise in determining the value of the home, calculating equity, and assisting with the overall division of assets during the divorce.

Q: What if one spouse wants to keep the house but the other wants to sell?

A: In such cases, the couple must negotiate a solution. The spouse wanting to keep the house may need to refinance to buy out the other spouse's equity share, or they may agree to sell the home and split the proceeds.

Q: How is home equity determined in a divorce settlement?

A: Home equity is determined by assessing the value of the property and subtracting the mortgage balance. This figure is crucial for equitable distribution of assets in the divorce settlement.

Q: Is it common for the family home to be part of the divorce settlement?

A: Yes, the family home is often a significant asset in a divorce and is commonly included in the division of property and equity. How it is handled can greatly impact both parties' financial futures.