Splitting the House: How to Resolve Property Disputes in Your Divorce Case
Written by: Megan Dell
We get asked many questions about divorce and home ownership. For many couples, deciding what to do with the house in the divorce will significantly affect the division of other assets and debts included as marital property. Understanding your options for splitting the house (or, more specifically, its equity) can help guide you and your spouse toward a property settlement agreement. This article will help you learn more about how to resolve property disputes in divorce.
A Reminder: South Carolina is Not a Community Property State
In South Carolina Family Court, a couple’s marital estate is made up of the assets accrued, and the debts incurred, during the marriage. South Carolina divorce lawyers and judges use a process called “equitable apportionment” (also sometimes called “equitable distribution”) in order to divide the marital estate between the parties.
So the answer to your question — is South Carolina a community property state? — is no. Instead, we are an equitable division state.
The Goal of Equitable Division is to Separate the Married Couples’ Finances
Who Gets the House in a Divorce in South Carolina? 3 Possibilities
As a practical matter, there are only 3 ways your house can be divided by the judge in a South Carolina divorce:
You Keep the Home
Your Spouse Keeps the Home
You and Your Spouse Sell the Home
Divorce property division involves identifying, characterizing, and valuing assets and debts. The marital estate is divided based on several factors. Options for the marital home include a buyout or sale. Keep reading to learn more.
Your Marital Home is Just One Asset to Address in the Process of Property Division
As we have detailed before, there is not a formula for property division and property disputes in divorce, but there is a process outlined by the S.C. Code to determine what each spouse is entitled to in a divorce.
Step 1: Identify All Assets and Debts Owned by Either Spouse
Before you can dig into the details of how to buy your ex out of the house and who keeps the house in a divorce, you have to start by identifying each spouse’s assets and debts. During this step, it does not matter whether the asset is jointly titled or titled solely to one spouse or whether one or both spouses are liable on each debt.
Step 2: Characterize Each Asset and Debt as Either Marital or Non-Marital
Once you have identified all of each spouse’s assets and debts, then you must decide whether each item is marital property or non-marital property.
S.C. Code Ann. Section 20-3-630(A) defines marital property as “all real and personal property which has been acquired by the parties during the marriage and which is owned as of the date of filing or commencement of marital litigation.” In other words, marital property is any property acquired during the marriage.
However, the Code Section also excludes some things as non-marital; specifically, these items are considered non-marital property:
Property acquired by either spouse through inheritance, will, gift from someone other than the spouse.
Property owned by either spouse before the marriage and property acquired after certain events during the marriage, like the start of a divorce process or the signing of a formal agreement.
Property obtained in exchange for the types of property mentioned in points 1 and 2.
Property that the spouses specifically agreed to exclude through a written contract, such as a prenuptial agreement, as long as it was made voluntarily with both spouses having their own lawyers and full financial disclosure.
Any passive increase in the value of separate property is generally not subject to division.
However, because it can take 12 to 24 months for a divorce action to be resolved, there can be substantial changes in the values of assets and debts between the date of filing and reaching a settlement agreement or going to trial. In those situations, both parties may be entitled to share in any appreciation in marital assets which occurs after the parties separate but before the parties divorce. McDavid v. McDavid, 333 S.C. 490 (1999).
It is very common for spouses to disagree about values given to individual assets and debts; however, in most cases, disagreements on valuation can be resolved through negotiation between experienced divorce lawyers, sometimes with the use of home appraisals.
Step 4: Determine What Percentage of the Marital Estate Each Spouse is Entitled to Receive
The last two steps of equitable division lead to the most frequent misunderstandings about property division. Most people believe the marital estate will automatically be divided equally between spouses, but that is not true.
Length of Marriage and Spouse’s Ages: How long you’ve been married and the ages of both spouses.
Misconduct or Fault: Any wrongdoing by either spouse that affected the financial situation or led to the breakup, but only if it happened before certain legal events.
Marital Property Value: The value of shared property and each spouse’s contribution to its acquisition, preservation, or increase in value. (This includes contributions by a homemaker spouse!)
Income and Earning Potential: The income of each spouse and their potential to earn money in the future.
Health: Both physical and emotional well-being of each spouse.
Education and Training: Whether additional training or education is needed for a spouse to increase their earning potential.
Nonmarital Property: Property owned by each spouse before marriage.
Retirement Benefits: Any retirement benefits belonging to each spouse.
Previous Alimony or Support: Whether alimony or support has been awarded from a prior marriage.
Family Home: The court considers the family home and its award in relation to child custody.
Tax Consequences: The tax implications of how assets are divided.
Support Obligations: Any existing obligations for support from previous marriages.
Debts and Liens: Any debts or liens on shared or separate property.
Child Custody: The existing arrangements for child custody.
Other Relevant Factors: Any other important factors specified by the court.
Based on these factors, the Court orders that each spouse will receive a specific percentage of the marital estate.
Step 5: Decide Which Assets and Debts Each Spouse Will Receive to Equitably Divide the Marital Estate
After each spouse’s entitlement to a percentage of the marital estate is determined, then each asset and debt is awarded to one of the spouses.
Some people are surprised to learn that each asset and debt is not individually divided between the spouses. Instead, it is more common for one spouse to be awarded the entirety of one asset and the other spouse to be awarded a different asset with a similar value.
This step is mostly likely to affect the final disposition of the marital home: whether you keep it, your spouse keeps it, or it has to be sold.
How Can One Spouse Keep the House in A Divorce?
Though a judge has three options on how to distribute the marital home in a divorce proceeding, based on the facts of each case, some of those options might be more practical than others. Several factors to consider are:
How Is Home Equity Calculated in A Divorce?
How do you calculate equity in your home for divorce? For purposes of equitable distribution, home equity is calculated by taking the home’s fair market value and subtracting the payoff balance of the existing mortgage.
The amount of equity in your home is often dependent on the amount paid as downpayment at the time of purchase and the length of ownership. It is also affected by the sale of similar properties nearby and the real estate market, more generally.
Percentage of Equity Accrued
The options to split the divorce equity in house or during divorce may be limited by the percentage of equity you and your spouse have in the property.
For example, if you did not put down a significant downpayment, have a high interest rate on your mortgage, or have not owned your home for very long, then you may not be at a point to have accrued more than a small amount of equity. In that situation, it may not benefit either spouse to attempt to maintain ownership of the home after a divorce is granted.
Liability on the Mortgage/Note & Ability to Refinance Mortgage
When you purchased your house, typically, either you, your spouse, or you and your spouse together, agreed to be liable for payments of the mortgage used to purchase the property. Sometimes, a third party — such as a spouse’s parent or other relative — will cosign on a mortgage loan to guarantee payments are made timely.
Timely payments of the mortgage loan are important to protect the credit score of any person who is liable on the mortgage or note. Additionally, if your spouse’s parent initially cosigned on the mortgage when the house was purchased, and now you would like to keep the home after divorce, removing your former inlaw’s obligation to pay the mortgage will be a necessity for resolving your case.
If you will need to remove either your spouse or a third party from the mortgage indebtedness, then your credit score will need to be high enough to assure the lender you can timely make the mortgage payments. If your credit score is not high enough to satisfy a lender you can afford the payments, then you may not be able to remove your spouse from liability on the mortgage without selling the property.
Mortgage Interest Rate
In the last several years, interest rates for mortgage loans have increased dramatically. If the mortgage on your marital home was financed or refinanced between 2020 and 2022, then refinancing a mortgage after divorce is likely to happen at a significant cost to you in the form of a much higher interest rate.
Divorce House Buyout Options
Almost every owner of a home who is facing divorce wants to know whether they can keep the house and give their spouse a “divorce buyout.”
There are two main ways you can accomplish a divorce buyout of home front:
You can keep the equity in the house but — in exchange — you give your spouse an equivalent amount of other marital assets. Ultimately, this is usually only an option when there are enough non-home assets to accomplish an equitable resolution. For example, funds held in retirement accounts can often be used to buy out your spouse.
You can refinance the mortgage on the house to cash out equity to pay your spouse for their share. For this to be an option, you have to have enough equity in the home to cover the remaining principal balance on the mortgage and the cash-out refinance divorce buyout amount. You also have to account for any increase in interest rates. For many people, this option does not make financial sense.
When to Sell the Marital Home During Divorce
As we have detailed, there are many factors that inform what the best option for division of your marital home in divorce may be. An attorney who advises clients about selling or buying someone out of a house during divorce or in divorce is likely to suggest sale of your home if:
The equity in your home is the largest asset in your marital estate.
Only one party is liable on the mortgage, and that party does not want to maintain ownership of the property.
The party who wants to keep the house is unlikely to be able to afford its mortgage payments and other costs.
The fair market value of your home has decreased since you bought it.
You do not have possession of your home because its condition prevents you from living in it.
A court ordered sale of your house is likely when the equity in your home is your largest asset and neither party can demonstrate an ability to afford mortgage payments after divorce. A judge may also order an owner to sell the house when one party has failed to timely make payments, which has negatively impacted the other spouse’s credit score.
Ultimately, even if your spouse refuses to accept that selling the house is the most reasonable option, they can be forced to facilitate a sale of the property by a South Carolina Family Court judge. And if they fail to comply, then they can be held in contempt.
You Can Negotiate Agreements for Alternative Dispositions of the Marital Home
While it is true that there are — ultimately — only three ways to divide your marital home in divorce, through careful negotiations guided by an experienced attorney, you can reach a deal that is more complicated but will give you greater flexibility.
For example, how long do you have to refinance after a divorce? You may be able to negotiate a later timeline to refinance the mortgage into your sole name, sometimes as much as 2 to 3 years. A longer deadline may enable you to obtain greater employment, improve your credit score, or find a cosigner on the new loan.
People wonder: how does home equity work in a divorce and can you keep a joint mortgage after divorce? And the answer is yes, but only if both parties decide doing so makes sense for each of them. Co-owning a house after divorce is often difficult, but if you and your ex are able to communicate effectively and are sincere about wanting to comply with your court order, then figuring out what to do with the house in divorce is not impossible to do.
In some cases, one spouse will stay in the home, continuing to live there, while the other spouse continues to be responsible for paying the mortgage. Then, at some point that is best for their family, they will sell the home, splitting the proceeds between them.
Get Further Information from an Attorney on How to Sell A Home During Divorce
In conclusion, navigating property division, especially when it comes to how to split house equity in a divorce, can be a complex and emotionally charged process. It’s crucial to have experienced legal guidance to ensure your interests are protected and the division is fair.
If you’re considering selling your house as part of your divorce agreement, we strongly recommend you consult with an attorney who can provide advice tailored to your unique situation and help you understand your options.
Do you feel overwhelmed by the prospect of divorce?