Regaining Equity from Home After Divorce

Ed. - This post is by Cathryn Wayne-Spindler, a local family law attorney with whom I work occasionally on divorce cases that require that the family home be sold as part of the settlement. 

The current strong real estate market and higher home values are good news for many people, especially those whose mortgages were underwater because they owed more on their home than the house was worth. The July 2015 Existing-Home Sales statistics showing a two percent increase were released recently.

“Sales in July remained at the highest pace since February 2007 (5.79 million), have now increased year-over-year for ten consecutive months and are 10.3 percent above a year ago (5.07 million),” according to a National Association of Realtors article, “Existing-Home Sales Maintain Solid Growth in July.”

Many people are now finding relief as they are once again able to either sell their home or refinance and access some of the home’s equity. This has particular significance for couples who divorced during the economic downturn and found themselves either unable to sell or unable to recoup any home equity. In many situations, one partner agreed to keep making the mortgage payments on the family home to avoid foreclosure.

With the stronger real estate market, realtors and divorce attorneys are working with clients who divorced years ago and are now looking to either get out from under their former mortgage or regain some of the equity that did not exist when they split.

When people ask Southeastern Michigan Divorce Attorney Kathryn Wayne-Spindler what they can do to get out of the prior mortgage or recoup some equity, she first recommends revisiting the divorce settlement papers’ division of marital property.

“It’s all about the Judgment of Divorce. A judge can only enforce what was in the contract you signed at the time of the entry of judgment.”

Wayne-Spindler says some experienced divorce attorneys were long-sighted. “We realized during the tough times that the financial situation would mostly likely rebound. So we negotiated terms into our clients’ divorce settlements that would require the spouse retaining the house to sell or refinance within a certain period of time,” said Wayne-Spindler.

If that’s your situation, the courts can enforce those requirements and you will be entitled to your share of the home equity (if in the judgment) and/or be released from your connection to that debt.

That’s important, especially for any divorced person who may be looking to move on in life and buy a new home. With your name still attached to the mortgage on the prior house, the debt-to-income ratio may have been too high to be approved for a new mortgage, even if you were not contributing to the home payments. Any divided equity from the sale of the first home can also be applied as a down payment for the next home.

Unfortunately, many divorce attorneys either did not look to the future or were not able to secure those kinds of clauses in their client’s agreement. If that is the case, unless your ex-spouse is willing to sell out of the goodness of his/her heart, it’s unlikely a judge would force him/her to now.

If the divorce settlement does not include a clause about selling or refinancing, consult an experienced family law attorney to determine your options.

Once you’ve determined what clause applies in your situation, it can be helpful to confer with an experienced Realtor like Norm Werner who can advise you about current market conditions and help you sell your old home or find a new home. It can also be advantageous to work with a local home appraiser like Norma Nicholson who can determine an anticipated home value so you know what to expect.

Attorney Wayne–Spindler has experience helping clients with their divorce and real estate questions. Contact her Milford, Michigan office for more information at 248-676-1000.

Splitting home equity in divorce when one party owned the home before marriage

 ED. - This is a guest post by my friend and local attorney Kathryn Wayne-Spindler. Kathryn specializes in family law, which encompasses estate planning and divorce and child protection types of cases. I end up getting involved in the disposal of the family home in many divorce cases and it is not unusual that the property may have been owned by one of the parties in the marriage before they even met. So, I asked Kathryn to comment for a post on what happens and how the court decides who gets what in divorce cases involving that scenario. Below is her reply:

In Michigan, the courts typically prescribe an “equitable” division of assets during divorce proceedings. This includes the equity in the family home. One factor that alters the “even” split, however, is if one of the parties owned the home before the marriage.

In the case of one party owning the home prior the marriage, the courts will usually return the down payment and any equity accumulated before the marriage, to the original owner. The remainder of the appreciated value would be split according to whatever formula the courts deem appropriate for the rest of the couple’s assets.

This holds true for marriages lasting less than 10 years. Long-term marriages are different because the assets have become so co-mingled over the years that determining which equity should be attributed to the down payment or other factors, becomes too difficult. Divorce Attorney Kathryn Wayne-Spindler said, “The definition of long-term marriage depends on the judge. Some say more than 10 years, but certainly 15 or more would count as a long-term marriage.”

In a long-term marriage, the proceeds from the sale of the family home, no matter who purchased it originally, would be split equitably. As Kathryn Wayne-Spindler has said, “equitable does not necessarily mean even. The courts start at a 50-50 split but take infidelity, each party’s income potential, and many other factors into account.”

The courts also consider the amount of divisible assets when deciding who gets the profits from the house. So even if one party owned the home before the marriage, if the house is the couple’s only valuable asset, some of the proceeds will be awarded to each person. “In these cases, the goal of property division is to make sure that neither party will be left destitute,” said Wayne-Spindler.

In cases where the couple has been married less than 10 years and they do have other assets to divide, the original owner would need to provide documentation of the original property purchase including closing papers and cancelled checks showing the amount of the down payment.

Then a historical appraisal would be performed. A certified appraiser, like Norma Nicholson of Nicholson Appraisal Services in Milford, MI, would look at the value of the home at the time of the marriage. She would take into account the comps at the time, features and improvements. In addition to the retroactive appraisal, the certified appraiser would do a current appraisal. The difference in the two amounts gives the court a value of the divisible equity of the home.

In Michigan, in the last decade especially, housing values have been on a roller-coaster path. There are, unfortunately, cases where the house was purchased for a high price and actually lost equity because of market conditions. “In that situation, the equity was likely lost forever.” The good news is that property values in this state are rebounding in 2015 and many homeowners are finding increased equity in their homes once again.

In summary, if the marriage lasted less than 10-15 years and there are other divisible assets, the original down payment and equity accrued before the wedding would generally be returned to the party that originally owned the home. The equity accumulated between the marriage date and divorce would then be split equitably.

Ed. - So, like many areas of the law each case may end up slightly different, depending upon many factors; however, it does appear that at least some of the equity that may have accumulated during a marriage that lasted 10 years or more will be split. This may not be what either party wanted to hear, but there are very few outcomes in a divorce that end happily for either side. Should you become involved in a divorce situation or one that seems to be headed in that direction, seek the advice of  good attorney. If you are in the Milford, Michigan area I can think of no better attorney than Kathryn Wayne-Spindler.

Divorce and real estate - it takes a team

When things go south in a marriage and divorce seems to be the only way out, the people involved may think of calling their priest or pastor and they may call friend s to commiserate; they may even have already called a lawyer; but, they seldom think of calling a Realtor® and they should.

Divorce is an extremely emotional process, filled with remorse, doubts, regrets and sometime (maybe too often) distrust and hate. It is a time of great vulnerability for all parties involved and a time when there are many decisions to be made, none of which should be made in haste or in hate and without professional advice.

While it may not be top of mind at the time, making good decisions about the single largest asset that most married couple have – their home – is critical for the future of both parties. Make bad or hasty and ill-advised decisions and they might haunt you for years, as you try to rebuild your life.

There is so much complexity surrounding the real estate (and other assets) that may be involved in a divorce that you really need to assemble a team to help you and your Realtor can be the person who does that for you. On the team, you’ll need a good divorce lawyer, your Realtor, your insurance agent, an appraiser, a tax/financial adviser and a mortgage adviser. Your Realtor can probably make recommendations or assemble the rest of this team.

Why all of those folks? Well, each one will either be providing you with advice about products that you already have (insurance, for instance) or products that you will need to get (a new mortgage) in order to move on with life. You need to understand your current homeowners policy – who’s listed as the policy owner (s) and who as the beneficiaries? What happens to that insurance when the divorce is final? Who needs to be listed then and who will be paying for it? As for the tax adviser or financial adviser (it probably will take two people for this), you need to understand the tax consequences of the divorce and make sure that you can file for your fair share of things after the final decree. You may need to have a good idea of the value of the home,is it is to be sold as part of the decree. You also need to understand the consequences on any long-term financial plans or policies or shared assets that you had in place. And, when the dust settles, you may need to get a new mortgage, in order to move on with life. How will this divorce leave you in terms of qualifying on your own for a mortgage? Can you do anything until your name is off the old mortgage or that mortgage has been discharged? Where will you go may be an easier question to answer than how will I afford it?

So, why I’m I writing about this? Because I care, for one, and because I have the team members already in mind to be able to help, from one of best family and divorce lawyers that I know, to a great insurance person, to a very thorough financial adviser and a great tax accountant and a mortgage rep that can make it possible for you to move on in life. These are people that I've worked with and trust to advise you on the aspects that go beyond my real estate capabilities. More importantly they are people that I trust with your fragile emotional state during this very trying time. I can introduce you to a team of professionals that will work with you through this process in a caring, respectful and empathetic way that will lift a lot of burdens from your shoulders and let you start the healing process.

So let’s start off by agreeing that divorce sucks and try to go forward from there the best way that we can, with a caring professional team of people on your side who can make sure that you make the right decisions during the process to come out whole on the other side. Call me and put my team to work for you. If you already have some people for some of these roles, great; let’s just add them to the team. If you don’t even know where to start; call me quickly so that you don’t spend another day by yourself in this process.