It is very common for the family home to be the most valuable asset in a divorce. This means that when proceedings take place for your separation, it is extremely important to understand how equity is determined.
There are several different options available in this situation, and the one that is chosen will vary depending on your situation, and the ruling of the court. However, if you are still unsure exactly what ‘home equity’ means, and how it is determined during a divorce, then you are in the right place.
What is Home Equity?
Home equity is the value of a homeowner’s financial interest in their home. In other words, it is how much your property is worth, minus any repayments you need to make on it (such as mortgage payments).
Your home equity will usually increase for the longer you own the property. This is because the house is likely to increase in value, and because you are paying off more of the mortgage as time goes by.
It is possible for people to tap into their home equity without selling the property. An extremely common method of doing this in the UK is ‘Equity Release’, which is when a lender will give you cash in return for a share in the proceeds of the sale of your property further down the line. Lots of people choose to do this when they are nearing retirement and want to use the cash tied up in their property to fund their retirement plans, without selling the house altogether.
The amount of equity you own in your home can vary depending on whose name the property is in. When you are selling a house after a divorce, the home equity can sometimes be split between the two of them, or one of the individuals can buy out the other. There are therefore a couple of different ways home equity can be determined in a divorce.
How Is Home Equity Determined In A Divorce?
In order for home equity to be accurately distributed during a divorce, it is important that you have access to an accurate figure of how much equity is in the home. To get this figure, you will therefore need to know the property’s value, and how much is remaining on mortgage repayments.
If the two ex-partners disagree about the value of the property, then a court can order an independent valuer to assess the house. Their valuation is then taken as the official amount. However, this can be an expensive process, so in an ideal world, both partners will reach an agreement about the value of the house.
Once there is an agreement over the amount of home equity, the ex-partners can come to an agreement about how to divide the equity between them. In some cases, they will opt for a 50/50 split – but if one individual has contributed more to the mortgage repayments than the other, then they may not be satisfied with this. Furthermore, it is possible that one of the partners may have already owned the property at the time of the marriage, but the other spouse may have contributed to the upkeep of the mortgage, made mortgage payments, or made investments into the property that impacted its value.
Needless to say, there are lots of variables which impact whether or not a 50/50 split is acceptable to both partners, and whether they are able to reach an agreement about another method of dividing the equity.
If an agreement cannot be reached, then a solicitor(s) may need to get involved to negotiate a settlement which is acceptable to both parties. If that fails, then a court order can dictate how the home equity is divided.
Can I Remove a Name from a Joint Mortgage?
When you have a joint mortgage, it is sometimes the case that both individuals decide to keep their names on the mortgage and get a lodger in or rent the property out as a whole. However, when one person leaves and the other stays, it makes more sense to remove their names from the mortgage completely.
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 going forward. 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.
There can sometimes be legal challenges associated with removing a name from a joint mortgage, especially if there are disputes between two ex-partners about the terms/methods of doing so. In this case, bringing in a legal expert can help you to reach a conclusion.
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