The Impact of Surging Home Prices on Divorce Property Settlements
For many couples, the family home is the largest asset they own. When home values climb, that asset becomes even more valuable. That raises the stakes in a divorce property settlement. Who keeps the home? Who buys out whom? How is equity split?
State laws dictate how property is divided. Some states split marital property equally, while others aim for an equitable division that isn’t always 50/50. In either case, the value of the home affects how much each spouse receives, whether in equity, other assets, or cash.
California is a community property state, so any increase in a home’s value during the marriage is generally shared equally.
How Do Rising Home Prices Affect Property Division in a Divorce?
The trend of rising home prices seems to be ongoing. According to the National Association of Realtors:
- The U.S. median home sale price was about $429,100
- Year-over-year price increases have continued for 38 consecutive months
Increased value of a home means an increase in the amount of equity to divide. In many marriages, home equity now outweighs savings, investments, and retirement accounts. Even a small difference in appraised value can shift a settlement by thousands of dollars.
Can One Spouse Keep the House?
In many cases, one spouse ends up keeping the house. The spouse who stays usually buys out the other’s share of the equity. Common ways to fund a buyout include:
- Cash or savings
- Trading other assets, such as retirement funds
- Refinancing the mortgage
Refinancing can be difficult when prices are high, since the remaining spouse must qualify for the loan on a single income. If a buyout isn’t feasible, couples may sell the home and divide the proceeds, or agree to delay the sale for a set period.
What if One Spouse Owned the Home Before the Marriage?
A home owned before marriage is often treated as separate property. However, if marital income paid the mortgage or funded major improvements, the other spouse may have a claim to part of the appreciation. A spouse who put separate funds into the home may also be entitled to credit for those contributions.
How is the Home’s Value Determined?
Most couples use a neutral, independent appraisal to determine a home’s value. Because prices can shift between separation and settlement, the valuation date and method can significantly affect the outcome.
Are There Tax Consequences?
It’s important to understand the tax implications of divorce property settlements related to the marital home. A married couple selling their primary home can generally exclude up to $500,000 of capital gain from federal taxes. After a divorce, each person is typically limited to $250,000. In a rising market, the timing of a sale and who keeps the home can become a significant financial decision. A tax professional can help you plan.
Can a Family Lawyer Help?
Dividing a high-value home takes careful valuation and strategy. The experienced family lawyers at Lonich Patton Ehrlich Policastri (LPEP Law) can help you plan your divorce and work toward the best outcome. LPEP helps families understand their options, negotiate buyouts, and protect their financial future. Schedule your free, no-obligation consultation to get started today.
Disclaimer: this article does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter.
FAQs
Q: Who gets the house in a divorce?
A: There is no automatic answer. Sometimes one spouse keeps the home and buys out the other’s share. In other cases, the couple sells it and splits the proceeds. The outcome often depends on who can afford to keep it, what other assets are available to offset the equity, and any arrangements involving children.
Q: Do we have to sell the house if we divorce?
A: No. A sale is only one option. A couple may agree that one spouse keeps the home, or that the sale is delayed for a set period, such as until a child finishes school. A family law attorney can help you decide which approach fits your situation.
Q: Does my name stay on the mortgage after the divorce?
A: Possibly. A divorce agreement doesn’t change your contract with the lender. Until the loan is refinanced or paid off, both names generally remain on it. As a result, buyouts often involve refinancing. Ask your attorney how to protect yourself if your ex-spouse keeps the home.
Q: Will I owe taxes if the home is sold during the divorce?
A: Possibly. The IRS generally lets homeowners exclude up to $250,000 of gain from the sale of their main home, or $500,000 on a joint return, if they meet ownership and use requirements. Because the amounts and eligibility rules can affect your settlement, consult a tax professional before deciding who keeps the home or when to sell.
Michael Lonich
Specializing in Divorce and Estate Planning, I am San Jose Attorney, Michael E. Lonich; and I have been battling for client’s rights for nearly 40 years. When focusing on divorce, child custody, and related matters, I know all too well the emotional and financial toll divorce has on clients. Integrity, common sense, and a passion for what I do which guarantee the best possible results for my clients. Resolution of family law issues requires an attorney able to navigate the myriad legal and emotional issues presented in cases. Financial issues, child custody, domestic violence, valuation of property, analysis of RSUs, hidden assets, spousal and child support, all may require trial, mediation, or a collaborative effort with the parties. Regardless, each client gets the individualized attention they require. Every family law case is unique, we partner with you to develop a comprehensive approach to get the best results.
