When facing the possibility of divorce, the dilemma of how to value the assets you and your spouse have accumulated over the years presents opportunities as well as challenges. To divide the marital assets fairly (also called “equitably” in Colorado), you need to know the value of each asset. Whether a formal valuation is needed or an agreement between the Parties as to the value of the item will suffice is often the first decision when valuing your property. Here are some thoughts on considerations when valuing your marital home.
How to Value the Marital Home
To value what is likely your largest asset, the “marital home”, an appraisal or a comparative market analysis ("CMA") is the best evidence to present to a Court. An appraisal, while more expensive and time consuming than a CMA, will be accepted by the Court as better evidence of value than a market analysis. So, if one Party has an appraisal and the other has a CMA, the Court will likely use the value stated in the appraisal. However, if both Parties agree upon just one way to value the marital home, then the Court will accept that one value. This, of course, requires an agreement of the Parties as to the type of valuation, who will conduct the valuation, how it is paid for and agreement to abide by the value obtained.
The marital home can also be valued by an agreement between the Parties—where they agree upon a value based on their own opinions and research, often by internet (Zillow, Trulia, etc.) and asking friends and family and realtor acquaintances. If the Parties do not agree to the value, though, such informal methods of valuation like the internet or acquaintances giving opinions, are likely to be rejected by the Court. There generally has to be some professional and verifiable basis for the value--not just a homeowner's thoughts or sense of the value.
What is Going to Happen with the Marital Home?
Once a value is established, the Parties can determine if either wishes to keep the home or if it is to be sold. The major considerations in this process are: 1) if they can afford to buy out the other's equity interest and 2) if they can afford the home after it is refinanced to take the other person's name off the mortgage. If the home's mortgage is in both names it must be refinanced by the Party that keeps the home and the refinance will very likely raise the monthly mortgage. So, even if one Party wants to keep the home, that may not be possible or it may not be a wise financial decision.
It all comes down to the numbers and what choices each Party makes. The buyout of the other Parties' share will be determined from the value of the home today (by appraisal or CMA) minus the amount of mortgage still owed. Since the housing market has been strong lately with prices rising, this means equity interests have increased greatly and it costs more to buyout the other's equity interest.
If the marital home is to be sold, then valuing the home is really not necessary. Whatever the home sells for is the "value" of the home. The Parties are going to divide whatever proceeds are gained in the sale (minus realtor fees, closing costs, etc.), so a theoretical value doesn’t matter—because there is an actual value which is the sale price. It is useful, though, to have an idea of the value so the Parties can have realistic expectations as to receiving the proceeds of the sale.
Although the problem was pretty common a few years ago during the financial recession, it is less common today to find a marital home in a divorce that is "under water"--meaning more is owed than it is worth. In the past when this happened, difficult decisions about short sales, foreclosures or having to bring money to the closing to sell the home had to be made. Sometimes, if a Party decided to keep the home they got the advantage of not having to pay any equity to the other, but they got a home mortgage that often could not be refinanced.
This meant they remained tied financially to the other Party and the other Party was burdened on their credit report with ownership of a home in which they did not live. For the Party that kept the home, as long as they could pay the monthly mortgage and taxes, it was not that bad a choice to make during a divorce. Especially now that we know it was only a matter of 5 years or so before the turn-around in the market, making it through those recession years to today, would mean a Party now has a valuable asset they got in the divorce for nothing.
At The Law Office of Jeanne M. Wilson & Associates, PC, we often see Clients who come to us with one idea about what will happen with the marital home. It is the job of the attorney to assist the Client by providing information and options--both realistic and unlikely--so the Client can make a decision that is in the best interest of their family. This may mean keeping the home or allowing the other Party to keep the home or selling the home. Either way, this is a huge decision and will affect both the near and long-term future of a family involved in a divorce.