By: Sarah T. McCain
It’s been a few years since we last wrote about how to deal with your marital home in a Colorado divorce. The last time we wrote a substantive post, the real estate market, like the rest of the economy, as largely in a big hole. At the time of the prior post, many people were dealing with homes that had little or no equity. Family law practitioners were often engaged in how to balance out the negatives. Back then, the terms “short-sale” or the seller having to “bring money to the table” were fairly common. Fortunately, the Denver area real estate market has rebounded significantly. For several years, the Denver housing market made a steady incline, raising home values in most of the metro area. Starting in 202o, and moving into 2021, an unexpected result from the horrible COVID pandemic has been the astronomical increase in the value of most residential properties. Today, homeowners going through a divorce are in a much better position in terms of the equity they may have in their homes, or really any other real estate. That said, what goes up will most likely go down. There are many things to consider when dealing with divorce and your real estate.
As a refresher, certain tenets of Colorado law tied into the division of marital property should be mentioned. Marital property is generally going to be property accrued by either spouse during the marriage. Property owned by either spouse prior to the marriage is separate. Property received by either spouse during the marriage via gift or inheritance is going to be separate. However, any increase to separate property during the marriage is going to be considered marital in nature. For example, if husband bought a home in 2012, say for $500,ooo, and that home is worth $1,000,000 in 2021, the $500,000 increase is marital and subject to division by the divorce court. So long as husband kept the property in his name he cannot be divested of the home, but he could have to pay with her equitable portion of the increase (generally one-half).
Presuming that a home is fully marital, titled in both parties’ names, there are basically three potential resolutions in a divorce. Either one spouse keeps the property and pays the other his or her share of the equity, the other spouse keeps the home, or the home is sold, with the net equity being split. If the parties cannot decide as to the disposition of the home, the court will ultimately decide. If there are no offsetting assets to compensate the other spouse, it’s much more likely that the divorce court will order sale.
When dealing with real property and your divorce, the first step is to ascertain each spouses wishes. If both parties agree the home should be sold and how to divide the equity, then there is really little work to do regarding that issue. However, if one party wants to keep the home, the equity will need to be determined, which is generally going to be done via an appraisal. In many instances, the spouses agree to a joint appraiser. In many instances they are satisfied with the valuation. However, sometimes the parties may not agree with the joint appraisers value. In those case, they will need to get their own appraisal done. If agreement cannot be reached after the second, or potentially a third appraisal, then there will ultimately be a battle of experts at trial, with the court ultimately determining the value. Appraisals can also be necessary when looking at separate real estate which has had an increase in value. Specifically, in addition to a present valuation, parties may also need to do a historical appraisal, back to the date of marriage, or perhaps back to the date someone inherited a piece of real property. With any case, the hope is that the parties can agree upon value. If not, the tools are there to father relevant information and evidence which will aid in either decision-making or court.
If one party ends up keeping the home, there may also be potential issues related to financing. If real property is financed jointly, there is much more to consider than just paying out equity. Credit and getting off of the loan on a house you are not keeping is also extremely important and something that needs to be addressed in final divorce orders. In Part 2 of this article, I will focus on refinancing and how that is generally dealt with either through settlement or in court. I will also touch on making sure orders are detailed regarding sale and arguments tied into contribution. Finally, I will discuss weighing your options when deciding how to deal with real estate in your divorce.