Collaborative divorce proceedings require a firm commitment to cooperation from both spouses. By agreeing to work together, they can take control of the situation, limit collateral damage to their relationship and divorce with dignity.
Simply agreeing to cooperate does not necessarily mean that spouses see eye-to-eye on every issue. They may still have to work out matters related to their shared children and their property. Asset distribution can become a point of contention in collaborative divorces.
Higher-value resources often trigger particularly intense conflicts. Disagreements about the marital home could leave spouses struggling during a collaborative divorce. The right steps can make it easier for them to appropriately address home equity during property division negotiations. How do spouses reach a mutually-agreeable settlement about the home where they live together?
Setting an appropriate value
Spouses may disagree about what a home is actually worth. That dispute can make it very difficult to agree on how much equity each spouse receives in the property division settlement.
Particularly if one spouse intends to retain the home and compensate the other, there has to be a reasonable fair market value in place for everyone to feel satisfied with the terms set. The insight of an appraiser or a real estate agent can help spouses determine what the home is worth and therefore how much equity they have accrued during the marriage.
Exploring solutions for sharing equity
If the spouses sell the home, they can agree to a specific division of the sale proceeds ahead of time. They can do so by establishing a set amount that one spouse requires or by determining what percentage of the sale proceeds each spouse receives.
If one spouse stays in the home, then the situation can be a bit more complex. The simplest solution for dividing home equity is often for the spouse staying in the home to refinance the mortgage. So long as the spouse refinancing can qualify for a mortgage on their own, they may be able to directly withdraw equity while refinancing. They can then provide those funds to their spouse to compensate them for their interest in the home.
Other times, the spouse staying in the marital home might need to make alternate arrangements. They could accept a larger portion of the shared marital debts to offset the equity that they acquire in the divorce.
They could also agree to let the other spouse retain certain valuable assets. Retirement accounts, small businesses, vehicles and other property can effectively balance out the value of home equity in divorce situations. Spouses sometimes need to be creative about the solutions that they employ if they hope to achieve an amicable settlement.
Having the right support can make it easier for people to set terms for a collaborative divorce while still protecting their own best interests. Home equity can be a stumbling block unless people prepare in advance to address this high-value resource when they divorce.
