How does the housing market affect the division of real estate in divorce proceedings? | Kohrman Jackson & Krantz LLP

Most clients own real estate that will be divided during the divorce process. The goal of divorce is to sort out the parties and separate their finances by the end of the case. There are two ways to go about dealing with real estate.

Two options to consider with real estate

The first option is the simplest: sell the residence. Once sold, excluding any separate claims by the parties, the net proceeds would be divided into equal parts. One of the benefits of selling a home during a divorce is that both parties usually split realtor fees and closing costs.

The second option in a divorce is for one of the spouses to buy out the other spouse. First, the parties will get an assessment. Both parties can hire their own appraiser or submit to a joint appraiser. Upon receipt of the valuation report, the parties will determine the net value of the dwelling and find the matrimonial share due to each spouse.

In most cases, the husband and wife are co-signers of the respective mortgage and note. Therefore, a party should refinance the loan in its own name. Over the past two years, parties have been able to take advantage of historically low rates. Even though they may have a higher purchase price, they were able to secure a manageable monthly obligation.

Parties must act quickly if they plan to sell their home

The intense housing market over the past two years has created new problems in a divorce. The parties were able to get offers they wouldn’t have received in previous years, so it was very advantageous for the parties to sell their house during a divorce. Last year’s evaluation process became difficult. The market price was higher due to market demand, while the condition of the house may not reflect the true market price. Most appraisers can take this into account and are able to provide a market value report. With the economy looming, things are changing dramatically. Market demand has fallen and interest rates are rising. If the parties plan to sell their home, they should do so as soon as possible while there is still demand. Additionally, if the parties plan to refinance the loan on their behalf, they will want approval while rates are low.

Lower market demand may prove beneficial

There is good news in the decline in market demand. The appraised value may more accurately reflect the actual condition of the residence. One of the biggest concerns in divorce cases is the future value of an asset. The spouse who purchased the property paid a high price due to market demand. Moreover, they took the risk that the market value would remain high.

When one of the spouses keeps the property during the divorce and buys out the other, this property belongs to him to keep or sell in the years to come. If a spouse retains ownership and paid a higher price due to housing demand in 2021, but the value declines in 2023, they may suffer a financial loss.

As the parties seek to separate physically, the spouses sometimes cannot afford a new residence. When housing demand decreases and prices fall, this will create additional housing options for customers. In some situations, the parties are forced to stay together, in dangerous or harmful situations, because they cannot afford a new way of life. The drop in demand will help these parties find new places.

There were many positives regarding the housing demand for clients going through a divorce. However, with housing demand declining, clients can avoid overpaying for their property during a settlement and will be able to find affordable housing options as they move through life.