DIVORCE AND OPTIONS FOR DIVIDING HOUSE EQUITY
Divorce and options for dividing house equity

A client came into my Brentwood, TN office today and let me know her and her husband would like to co-own the martial residence for at least two years post-divorce as she needs two years of earning history to qualify for a refinance of the mortgage.  She stated, "My sister told me this is not possible and we need to sell the house now and divide the equity.  Is she correct?"

My response was, "No, your sister in not correct".  There are always options to divide the house equity and each case is unique.  The solution to divide the marital estate needs to be tailored to the case.  One size fits all or, one solution for every case is not the way we approach settlement negotiations.

If a wife and husband want to continue to co-own the residence, this is a viable option providing we address all details including:  Can the Wife afford to pay the monthly utilities and maintenance bills?  How will potentail capital improvements (replacing the HVAC etc.) be divided while the house is co-owned?  How will the insurance deductible be handled if there is a claim? and several other issues. 

We also need to set a fair and realistic timeline for the equity payment to be made to the spouse who left the house since they may be renting while they wait to receive their equity payment.  If the wife needs two full years of W-2 statements to qualify for a refinance, the husband will likley be waiting closer to 2.5 years to recieve their equity payment.  Is this acceptable to both spouses?

Additionally, the spouse who is waiting for their equity payment has an opportunity cost of not having the cash in hand to buy another residence or to invest the funds and receive a return on their investment.  This issue needs to be addressed so the settlement is fair to both spouses today and tomorrow.

There are several other details that we address when discussing dividing house equity with clients and this post is not the venue to cover every point of discussion.  If you are divorcing, realize there are always multiple options in a divorce settlement and you are wise to consider all viable option and to understand the financial impacts before agreeing on terms.