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Divorce Appraisals
In a divorce, one of the most difficult
issues is often what happens to the house the family lives in or other
real estate. There are a number of options that must be considered when
determining how real estate is to be divided in a divorce. That does not
always mean that the real estate must be sold.
Determining Real Estate Value.
The first step in dealing with real estate issues is to determine the
value of the property. If the parties are unable to agree on the current
market value, there are several valuation methods that can be used:
Appraiser. It is often most cost
effective to agree on a real estate appraiser to have a market valuation
performed. This service will often cost approximately $350 - $450. Of
all the methods recognized by the courts, this is the most accurate
method and
will leave no doubt about the value of your home. Click
HERE to order your divorce appraisal,
or just call us.
Tax Assessed Value. The tax assessed value is usually not an
accurate method to value real estate. tax valuations are generally low
by as mush as ten to twenty percent. If there is a dispute in value, the
tax assessed value is likely to be given little weight in Court.
Realtor. A real estate valuation may also be performed by a
realtor at little to no cost. However, such valuations are often less
reliable than those performed by an appraiser since a realtor performs
an appraisal to maximize sale price and has less training than a Real
Estate Appraiser.
Determining Equity
Equity is the true value of the asset of the property to the parties. It
is determined by subtracting the encumbrances against the property from
the Real Estate Value. Encumbrances may include any loans secured
against the property including mortgages, second mortgages, home equity
loans or secured lines of credit. Under Washingotn case law, costs
associated with a sale of the real estate are not deducted unless the
home will actually be sold as part of the divorce.
Determining Marital vs. Non-Marital Equity
The second step is to determine what portion of the equity is marital
and what is non-marital. Certain assets may be excluded from the marital
estate which means that they are not divided between the parties. These
are called non-marital assets. Any non-marital assets that you possess
remain yours and any non-marital assets of your spouse remain the assets
of your spouse. Generally the non-marital equity falls into the
following categories:
- Premarital. Any asset acquired before
the marriage (if the asset was encumbered by a loan that was paid off
during the marriage, it may only have a partial non-marital value);
- Prenuptial Exclusions. An asset
excluded by a valid prenuptial agreement;
- Personal Injury Proceeds. Personal
injury settlements are generally considered personal to the injured
party and are non-marital in nature;Inheritance. Any proceeds or
assets from an inheritance;
- Gifts. Any asset acquired as a gift to
one, but not both parties.
It is important to recognize that all assets are considered part of the
marital estate unless proven otherwise by a "preponderance of the
evidence." This places a significant burden on any person making a
non-marital claim. It is essential that any and all documents including
documents of title, receipts, or canceled checks that support your
non-marital claims must be provided. Any failure to provide
documentation may result in the division of the asset in the divorce.
The Schmitz formula is used in
determining the marital versus non-marital interests in real estate. The
formula provides a simplistic model to help determine non-marital
interests in real estate. Since real estate mortgages and other
encumbrances against property are paid off over a significant period of
time, marital interests may be created in real estate that was owned by
one party before the marriage. As encumbrances are paid off during the
marriage, a marital interest is created. The formula states that the
proper calculation of a non-marital interest may be derived by
determining the ratio of equity to market value at the time of the
marriage and then using that same fraction to determine non-marital
interest at the time of divorce. For example, lets assume a spouse owns
a home prior to marriage and that home has a value of $100,000 at the
time of the marriage and that is encumbered by a mortgage of $75,000.
The $25,000 equity (the difference between the value and the
encumbrance) becomes the numerator in the Schmitz formula and the value
of $100,000 becomes the denominator. As a result, the non-marital
interest is 25% of the home's value. If the home appreciates to
$200,000, the spouse with the non-marital interest may claim the first
$50,000 as the non-marital interest and any remaining equity would be
divided as marital.
The limitations of this formula are obvious. First of all, it may be
very difficult to determine with any degree of accuracy the value of
real estate at the time of marriage unless an appraisal is done at that
time. That value alone may become a contested issue that results in
litigation and testimony of experts. Second, In many instances,
mortgages are refinanced after marriage, second mortgages and home
equity loans may also be incurred. These new debts may erase or
partially erase a non-marital interest. Third, the formula does not
consider the effect that capital improvements made during the marriage
have on the real estate value. Capital improvements that are made during
the marriage and which increase the value of the real estate may erode
some of the non-marital interest represented by the Schmitz formula.
Often, presenting a persuasive property case depends on clear cut
documentation, and expert testimony. It is important to consult with a
lawyer regarding significant non-marital issues.
Dividing the Asset.
- Once Marital versus non-marital
interests are determined, the parties may discuss a division of the
asset.
- Occupancy/Ownership by one. If the
real estate is awarded to one of the parties, the other party must be
compensated for their share of the marital equity. This compensation
may take one of several forms.
- Award of Other Assets. to think of the
property division as a spread sheet with three columns. In the first
column, list the asset. In the second column list the value of the
asset awarded to the husband and in the third column the value of any
assets awarded to the wife. If on party is awarded the real estate,
their column will reflect the marital equity awarded to them. This may
be offset by other assets awarded to the other party.
- Refinance Mortgage. When one party is
awarded real estate, the other party may remain obligated on any
mortgage, second mortgage or home equity ;loan if they were a signor
on the loan. As a result, in most instances the real estate mortgage
must be refinanced to remove the other party's name. As part of that
refinancing, the party that is awarded the real estate may seek
additional funds to pay off the other parties' equitable interest.
- Pay Off Over Time. A party's interest
may also be paid out over time with or without interest abs negotiated
between the parties. This is usually only used when there are no other
assets that can be used to equalize the property division. The pay off
amount and period may depend on the respective incomes of the parties.
- Sale and Division of Proceeds. When no
other assets are available to equalize the division of property and
the parties are either unable to afford the real estate or unable to
refinance the real estate, the property may be sold and the proceeds
divided.
- Immediate Sale. Real Estate may be
placed immediately on the market for sale with the parties dividing
the net proceeds realized from the sale. "Net proceeds" are generally
defined as the amount remaining after the following costs have been
subtracted from the sale price or appraised value of the homestead:
Expenses of sale, which shall mean all the usual and customary
expenses of sale such as attorneys' fees, points, broker's
commissions, assessments, expenses of updating the abstract, and other
normal costs of closing; Any secured debt including any Mortgage,
second mortgage, home equity loan or secured line of credit; A credit
payable to either party for the amount of principal reduction made by
him/her on the mortgage up to the date of the sale.
Sale in Future. The parties may agree to
sell the real estate at some point in the future. This may be agreed
upon to allow the party occupying the real estate to attempt to repair
credit and ultimately refinance the mortgage. It may also be agreed upon
to allow any minor children to remain in the homestead until some event
in the future. Without an agreement of the parties or some showing of
hardship, a Court is unlikely to require the party that is not occupying
the homestead to wait to receive his/her equity until the children are
no longer minors. If one party occupies the homestead, that party is
generally responsible for any secured encumbrances against the
homestead. Additionally, the party that is not occupying the homestead
will want to include language in the agreement of the parties and the
final order which protects his/her credit rating in the event that the
occupying party fails to pay the debts secured against the real estate.
Click HERE
to order your divorce appraisal
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Sound Appraisal
A division of Sound Real Estate LLC
- 11017 124th St.
Ct. East
- Puyallup, WA
98374
- Phone (206)
714-2004, Fax (425) 642-8102
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