Owning real property can sometimes make for a heated divorce because so much money is at stake. Real estate usually has some significant value -- more than your automobiles or sometimes even retirement plans. To further complicate things, it's often encumbered by mortgage liens as well. Whether spouses are trying to negotiate a marital settlement agreement or the court is ordering a solution at trial, several issues must be considered when making a distribution of marital property.
A common misconception is that if you owned real property before you married, it's unequivocally yours in a divorce and your spouse has no right to it. This might be the case if you were only married for a short time and the property didn't appreciate in value, but in many states, appreciation of separate property is a marital asset. For example, if you purchased a bungalow for $150,000 before you tied the knot, and it's now worth $250,000, your spouse may be entitled to a share of the $100,000 increase. If she contributed labor or effort to its upkeep, or if you used marital funds toward its maintenance or a mortgage, she might have a stake in it even if your state doesn't view appreciation as a marital asset. The skills of a divorce accountant or experienced attorney usually becomes necessary to nail down exactly what she's entitled to receive.
Dividing Equity and Debt
If you and your spouse bought property during your marriage, the name on the deed doesn't matter. Even if the property is only in one of your names, it's still a marital asset. If there's a mortgage against it, both this debt and the property's equity must be divided when you divorce. If your spouse is keeping the property, she would typically refinance the existing mortgage to remove your name. Taking full responsibility for the lien is balanced -- at least to some extent -- by the fact that she gets the property as well. She receives the value up to the amount of the mortgage debt she's assumed, plus a portion of the equity. You would typically be entitled to the remainder of the equity. She would have to buy out your share, usually by refinancing for more than the existing mortgage balance so she can give you cash, or she might give up other marital assets equal in value to your portion.
When the Court Orders a Sale
Refinancing typically requires that the property's value is more than the existing mortgage against it. The spouse retaining the property must also have sufficient credit and income to qualify for a new mortgage on her own. Sometimes, this just isn't possible. This means that if you're negotiating a settlement agreement with your spouse, you might have to consider putting the property up for sale so you can each receive your share of the proceeds. If there's a dispute as to who gets the property and you can't reach an agreement and go to trial instead, the judge will consider these same issues. If neither of you can swing the mortgage on your own, the court will probably order the real estate sold so each of you can take your share of the equity in cash, if there is any. If one spouse can refinance the mortgage, but you do not have enough other marital property to achieve a buyout, the judge will most likely order the property sold in this case as well.
The deed and the mortgage don't go hand in hand. Your spouse may refinance, but if you don't create and sign a quitclaim deed transferring full ownership to her, she'll find herself in the position of owing 100 percent of the debt but owning only half the property. Likewise, if you sign a quitclaim deed to relinquish ownership, but there's no refinance to pay off an existing joint mortgage, you're still on the hook for the debt without having any ownership interest to show for it.