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How Does the Housing Market Affect Real Property Division in Divorce Proceedings?

July 19, 2022
divorce

Most clients are owners of real property which will be divided during the divorce process. The goal of the divorce is to disentangle the parties and separate their finances by the end of the case. There are two ways to do this with respect to real property.

Two Options to Consider with Real Property

The first option is the most simple: sell the residence. Once sold, excluding any separate claims by the parties, the net proceeds would be divided equally. A benefit of selling a home during a divorce is that both parties typically share the expenses of realtor fees and closing costs.

The second option during a divorce is for one spouse to buy out the other spouse. First, the parties will obtain an appraisal. Both parties can hire their own appraiser, or they can submit to a joint appraiser. Upon receipt of the appraisal report, the parties will determine the equity of the home and find the marital portion owed to each spouse.

In most cases, both husband and wife are co-signors on the mortgage and respective note. Therefore, one party would have to refinance the loan into their name alone. In the last two years, parties were able to take advantage of historically low rates. Even though they may have had a higher purchase price, they were able to get a manageable monthly obligation.

Parties Should Act Quickly if Considering Selling Their Home

The intense housing market over the last two years created new issues during a divorce. The parties were able to get offers they would not have gotten in prior years, so it was highly beneficial for parties to sell their home during a divorce. The appraisal process in the last year became challenging. The market price was higher because of the market demand, whereas the condition of the house may not have reflected the true market price. Most appraisers can take this into consideration and are able to provide a report of market value. With the looming economy, things are changing drastically. Market demand has decreased, and interest rates are climbing back up. If the parties are considering selling their home, they should do so as soon as possible while there is still demand. In addition, if the parties are considering refinancing the loan into their name, they will want to get approved while rates are lower.

Decreased Market Demand May Prove Beneficial

There is good news in the market demand decreasing. The appraisal value may reflect more accurately to the actual condition of the residence. One of the biggest concerns in divorce cases is the future value of an asset. The spouse buying out the property was paying a premium price due to the market demand. Further, they were taking a risk that the market value would stay high.

When one spouse retains the property during the divorce and buys out the other, that property is their own to keep or sell in future years. If a spouse retains the property and paid a premium price due to the housing demand in 2021, but the value decreases in 2023, they may have a financial loss.

As the parties look to physically separate, sometimes spouses cannot afford a new residence. When housing demand decreases and prices decrease, this will create additional housing options for clients. In certain situations, parties are forced to stay together, in dangerous or detrimental situations, because they cannot afford a new living arrangement. The decrease in demand will assist these parties finding new places to live.

There were a lot of positives relating to housing demand for clients going through divorce. However, with the housing demand decreasing, clients may avoid overpaying for their property during a settlement and will be able to find affordable housing options as they move forward in their lives.

For questions, clarifications or further assistance regarding the content of this article, please contact KJK Divorce attorney, Carly Boyd (CBoyd@KJK.com; 216.736.7254).

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