By: Curtis Wiberg
Over the last several years, Denver real estate prices have increased rapidly and significantly. In many Denver divorce cases, the largest asset needing to be divided is the marital home. If the parties have resided in the marital home throughout the course of the marriage, keeping current on payments, and in this market where house prices have been rising, oftentimes a divorcing couple will have built up significant equity in the home (Equity = Sale Price minus Existing Mortgage owed). This valuable asset is something that will need to fairly divided between the parties as part of any divorce resolution.
The most accurate and assuredly fair way to divide the home equity is to sell the marital home. What better way to determine how much home equity there is to divide than to go through the process and see how much is left over after sale and closing? Even if the parties determine to sell the house, some issues can still arise if the sale is done during the divorce. For instance, if the house in need of repair to get the home ready for sale, the parties need to figure out how to pay for these repairs and agree on a contractor. Some parties insist on doing the repairs or improvements themselves, which is an endeavor that can lead to tension and conflict in marriages that don’t even involve divorce.
The choice of an agreed upon realtor is another potential point of contention if there is going to be a house sale, especially if the parties have different ideas on how much to list as the sales price of the home. Generally, a good trusted realtor can be a very valuable resource in working through the issues of selling a house during a divorce. If the parties trust the realtor on determination of necessary repairs (versus ones that won’t add much to the sale price), listing price, timing of sale, etc., a huge source of conflict and anxiety in a divorce case is made as workable as possible. Given that realtors don’t necessarily decide the sales price and the penchant for people going through a divorce to disagree, sometimes it may make sense to actually lay out rules in your divorce agreement regarding how sales price will be determined, acceptance of offers, and reductions in price should the home not be selling.
But what if one party wants to stay in the home after the divorce? Many times, especially in cases involving children, one or both parties might believe that it might be easier for the kids’ “home base” to stay in tact during the family upheaval of a divorce. Regardless of the reason, though, if one party wants to keep the home, that party will have to essentially buy out the other party’s share of the equity (in a typical divorce case, home equity is divided equally between the parties, but individual circumstances may make a disproportionate split of the equity or other assets more appropriate).
In order for one party to buy out the other party’s equity in the marital home, a value will have to be determined. The party remaining in the marital home will most likely have to refinance to pull out equity to pay the other party their share. If staying in the house is desired by one party, that party should speak with a potential lender to see if such a refinancing is even feasible. The party desiring to stay in the house has some disadvantages that a married couple does not have, including only one income instead of two, and a higher mortgage because of buying out the other spouse.
If it appears that a refinance is feasible, and the other spouse is open to being bought out in a refinance, the parties may be able to get the process in motion such that the appraisal that accompanies the refinance can determine the value of the house for determining the equity. However, in many cases, a lender may need to see how one spouse’s financial situation stabilizes after a divorce (this is especially so in a case where the spouse desiring to remain in the house is awarded spousal maintenance) before approving a refinance. The parties would then need to do their own house appraisal as part of the divorce to determine the home value. This usually costs the parties approximately $500. The parties could alternately agree to do a comparative analysis to determine the value of a house (an analysis many realtors will do cheaply or even free as a sales’ tactic). In some cases, the parties do not agree on value and there could be multiple, dueling appraisals for the court to consider when determining a value.
Finally, for the party who agrees to be bought out, but where the ability of the other party to refinance is not set in stone, it is incumbent on that party to set a deadline for a refinance to be set in motion shortly after the divorce, so that if the refinance does not pan out, the house is then ordered to be sold. No party should be left in a spot where a significant asset and credit (by remaining on a mortgage indefinitely with an ex-spouse) is tied up for many months after a decree for divorce has entered. Having provisions in your divorce orders regarding time to accomplish refinance, time to sell, and what happens if the mortgage payments are not timely made can go a long way in preventing conflict or confusion in the future.
If you are going through a divorce and have a home which needs to be dealt with, it just makes sense to consult with a family law attorney prior to making any decisions.