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What happens to home equity when you divorce?

At its core, divorce involves dividing assets, debts and, if applicable, parenting responsibilities once you no longer share a romantic relationship, and one of the most significant matters you and your partner need to address during your split is home equity. For many couples, home equity is one of, if not the, most sizable asset the two parties share between them, so dividing home equity can sometimes prove to be a point of contention after a split.

It does not have to be, though. There are three options most couples choose from when they need to determine how to divide home equity after divorce. While the following are some of the most common methods today’s divorcing couples use to divide home equity, this is not an exhaustive list of all possible options, and you and your partner may be able to get creative in crafting an agreement that works for you. However, most divorcing couples take one of the three following steps.

1. Sell the home, split the proceeds

Many divorcing couples who have equity in a shared home determine that the easiest option for them is to simply put the home on the market and divide the proceeds between them after it sells. This method also allows you and your one-time partner to make a good, clean break from one another.

2. Share the home

A less common, but still possible, option for some couples involves sharing the home for a while following the split, and divorcing parties may have several reasons for doing so. In some cases, separating spouses may hold off on selling the home because of poor market conditions, or they may do so because they are trying to minimize all the changes their children are going through during what may already be a difficult time.

3. Have one party buy out the other

A third method of dividing home equity involves having one party refinance the mortgage so it excludes the other party. That way, one parent can stay in the family home and the other can look elsewhere.

While you have numerous options available to you when it comes time to divide home equity between you and your former partner, many couples find that one of these three methods best suits their needs.

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