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Valuation of Assets in Divorce- Part I; Real Estate

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The divorce code does not specify a particular method of valuing assets such as a home

By Attorney Nichole A. Collins, Divorce Attorney, Harrisburg, PA

Many clients facing a divorce have questions about what will happen to the stuff that we've collected.  The house, the furniture, the securities (stocks, bonds, pensions) when it comes time to proceed through a divorce matter.  Because the concept of equitable distribution (see link to my article about the factors the courts consider) is so vast, I've chosen to focus my articles in separate parts.  Part I, will only examine what occurs when we divide the real estate owned by the parties in a divorce.

How do we arrive at a value?

We need to figure out what the equity is in the home.  That is, the total value of the home as of the date of separation, less any liens or encumbrances on the home.  This is where the homework activity I've described in a recent article will payoff.  (See link).  The parties usually rely on a recent appraisal of the home to determine its total value.  Each party may obtain their own appraisal, however, since the Divorce Code does not contain a specific method for valuing assets, a trial court must exercise its discretion and rely on the estimates, inventories, records of purchase prices, and appraisals submitted by the parties, and court is free to accept all, none, or portions of the testimony regarding the true and correct value of property.  Further, a court may reject evidence offered by both parties in favor of its own valuation method.

What happens once a value is determined?

So, how does a court divide the house we live in?  The court may order that one party keep the home (the retaining party) and refinance the mortgage to remove the other party from the encumbrance.  The retaining party will have to indemnify and hold the other party harmless from any current or future liens or encumbrances as a result of their ownership. 

If the parties can reach an agreement, one party may end up keeping the home.  Typically, there is a mortgage, perhaps two, that the retaining party will have to satisfy in an effort to refinance the home.  If the retaining party can successfully refinance the home in their own name, it is always best to complete this either concurrently with the finalization of the divorce or, by agreement, shortly thereafter.  The retaining party will then pay the other party for their share of the equity in the home at the time of settlement on the refinancing.  The refinancing does not have to occur before a divorce decree is entered.  Rather, in most instances, a marital settlement agreement that is incorporated into the divorce decree will set forth a timeline for the retaining party to have the refinancing complete.  Failure to successfully complete the refinancing may expose the retaining party to court sanctions, attorney's fees and court costs.

If, however, the home cannot be refinanced by one party alone, the home is usually sold and the proceeds from the sale are divided after deducting the mortgage payoff(s), liens, commissions and any taxes due on the sale/transfer of the real estate.

Going through a divorce and dividing assets, especially the home, is never an easy process.  There's emotions tied to many of these items of property.  However, having experienced counsel at your side will always help you to understand the process and make good decisions throughout the divorce process.  You may call Shaffer & Engle Law Offices, LLC toll free or email us today to discuss your case.

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