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What happens to home equity when you divorce?

At one point, you and your soon-to-be-former spouse planned to spend the rest of your lives together, and during that time, you may have secured assets together that you now need to figure out how to divide. For many couples facing similar situations, the most substantial asset the parties must figure out how to divide between them is a shared home.

While there are a number of different avenues you can consider taking to split up the equity you have in your home, many divorcing couples choose to divide home equity in one of the following three ways.

Option 1: Put the home on the market and split the proceeds

If one of your main objectives in your divorce is to make a clean break from your former partner, consider placing your home on the market so that when it sells, you can simply split the difference between you and your ex. Unless you stand to lose a substantial amount when selling, this can be a great way for both of you to get a fresh start.

Option 2: Have one party refinance the mortgage

If you or your partner wants to stay in your former family home and the other party does not wish to do so, the spouse who does wish to remain in the home may want to refinance the mortgage on it to get it exclusively in his or her name. This enables the party who wishes to stay to “buy out” the other party, and it may, too, help the departing party put a down payment down elsewhere.

Option 3: Share the home and wait for conditions to improve

In some cases, the two aforementioned options are not ideal. When finances allow, some former couples are swapping out time spent in the once-shared home and having one party stay there while the other party temporarily stays elsewhere. This arrangement may benefit you if, say, your children will soon move out and you do not wish to disrupt them in the meantime, or if the housing market in your area is especially weak.

Understanding your options as far as dividing home equity can help improve the chances that you make the best possible decision for yourself and your financial future.

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