How to Figure Home Equity in a Divorce

By Beverly Bird

Updated March 20, 2020

House with For Sale sign on front lawn

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Asset valuation is a crucial part of property division in a divorce, and the marital home is often a couple's most valuable asset. Most state laws require the parties to obtain an appraisal to determine a home's equity as part of the divorce process. It's important to identify equity, because each spouse is entitled to a share of it as part of property division.

Find an Appraiser

To begin calculating equity, you'll need to value the property, and for that, you'll need a licensed real estate appraiser who has experience appraising homes for divorces.

A trained and licensed appraiser will do a great deal of research before giving you a price. He'll typically inspect your home then compare it to others that have sold in your geographical area. He'll determine if your home shares similar features with those homes and if it has fewer or more amenities. He'll then adjust your home's value upward or downward, comparing it against the sales prices of the others.

Although it may be tempting to just use your home's tax-assessed value or have a real estate agent do a comparative market analysis, these choices won't hold up well in court if you and your spouse end up disputing the value of your home at trial. What's more, comparative market analyses often come in high, and in many areas, tax-assessed values have little relation to market value.

Subtract the Total Liens on the Property

After figuring out the value, you'll need to determine the extent of all liens against your property. This might include the mortgage, a home equity loan or property tax liens.

A title search is also a good idea, as there may be liens against your property you don't even know about, such as a judgment lien (in many states, a judgment entered against you creates a lien on your assets).

When you've gathered documentation confirming the balances of all liens, add them up and subtract the total lien balances from the value of the property. For example, if your house is worth $200,000 and you have a mortgage with a balance of $150,000, your equity is $50,000. Equity is the unencumbered value of the property, and you have a few options for dividing it.

Dividing Up the Equity in Divorce

A divorcing couple looking to divide equity has a few options. You can refinance the mortgage for enough money to satisfy the existing mortgage plus half of the equity and pay off your spouse's interest; this is an option if you plan to keep the home.

You can also offset your spouse's share of the equity by relinquishing to him other marital assets of comparable value, or the two of you might agree that you'll make a cash payment to him over time.

Finally, you can sell the property to a third party and split the proceeds. The equity in this instance is simply determined by the sale price. Know, however, that if you find a buyer before your divorce is final, you probably won't receive your equity immediately. The court will typically hold the funds in escrow until you've either reached a marital settlement agreement or a judge decides what percentage each of you should receive. Getting an appraisal can help you decide on a reasonable listing price, although a reputable real estate agent can assist you with this as well.

Competing Appraisals in Divorce

You and your spouse can use one appraiser and split the cost, or each of you may hire your own and get two appraisals. If you and your spouse use different appraisals and the appraisals come in at different values, if you can't agree on a value, you'll have to go to court, and the judge will decide which valuation she thinks is most accurate.