Property often has to be sold during divorce.
Determining home equity is a difficult but important part of this.
Read on to learn what it is and how it’s determined.
What is home equity?
Home equity is the value of a homeowner’s financial interest in their home.
In other words, it’s your property’s value minus repayments you need to make on it. (For example, mortgage payments.)
Home equity usually increases the longer owners have the property. Over time the property value increases and the total mortgage amount decreases.
It is possible for people to tap into their home equity without selling the property.
Equity release
Equity release is when lenders give cash to buyers in return sale proceeds later later on.
Many people choose to do this when they are nearing retirement. It enables them to fund their retirement plans without selling the house altogether.
How is home equity determined in divorces?
The first step in determining home equity is establishing a property’s value.
Sometimes a divorcing couple disagrees on this figure. A court can then order an independent valuer to assess the property. Their valuation is then taken as the official amount.
Next, this figure is compared with how much is remaining on mortgage repayments.
If an agreement isn’t reached, a solicitor may need to negotiate a settlement acceptable to both parties. If that fails, then a court order can dictate how the home equity is divided.
Considerations around equity split
In some cases, couples opt for a 50/50 split.
In other conditions, splits differ for several reasons, including if one person has:
- Contributed more to the mortgage repayments than the other
- Owned the property before the marriage
- Contributed more to increasing the property’s value.
Can I remove a name from a joint mortgage?
Some divorced couples keep a joint mortgage rent their property out. However, this is rare.
Removing a name from a joint mortgage isn’t as complicated as you might think.
You can buy the other person out and transfer the mortgage into one name.
As long as you have the funds to both buy the other person out and cover the monthly repayments on your own.
If not, you might want to consider selling the property and splitting the profit. Or keeping the joint mortgage and renting it out to cover the cost.
Removing a name from a joint mortgage can bring legal challenges. This is especially true if there are disputes between two ex-partners about the terms of doing so.
