The home where couples live together can be a source of significant marital wealth. Their accrued equity can provide them with collateral for a loan in an emergency. People often hope to leverage their home equity during their golden years or to pass what they have accumulated to their children after they die.
When homeowning couples divorce, splitting their home equity is typically a necessary part of that process. Particularly in scenarios where spouses settle their property division matters instead of litigating, they may be at risk of making a common mistake that could put one spouse at a disadvantage during the property division proceedings. People who are aware of this common mistake can protect themselves and secure the resources they need to live comfortably after divorcing.
People assume they know what their home is worth
There are many mistakes spouses can make when handling high-value assets in a divorce, and there are many myths floating around about what happens to the marital home when couples divorce. Assuming that the price paid for the home represents the current value of the house is a common mistake.
Spouses should base property division decisions on the fair market value of the home, not the prior purchase price of the home. The fair market value is likely substantially higher than what spouses paid unless they acquired the home when the market was competitive and little time has passed.
Homes tend to slowly accrue value over time as long as there are no major issues with the local market or the individual property. In recent years, homes have appreciated by as much as 5% or more annually in some markets.
Spouses preparing for divorce and property division negotiations may need the insight of real estate professionals to effectively address their homes. An agent who can look at the sale prices for comparable properties in recent months, or an appraiser can potentially help spouses more accurately estimate what their homes are worth.
That figure can then guide the overall property division process. If spouses use the sale price from years ago to negotiate the division of equity, one spouse might ultimately agree to accept far less than their fair share of home equity.
Identifying assets that have an outsized impact on the overall value of one’s marital estate is critical for the protection of spouses as they prepare for divorce. Home equity is often one of the most valuable resources that spouses must divide as they separate their lives and their finances.