Dear Cassie: What happens to our house in a divorce?

Dear E.H.:

A house is an asset subject to equitable distribution pursuant to New Jersey law, no different from any other asset.

If you and your spouse conclude, or a court rules, that your house will be sold, then it is the equity in the home at the time of sale which is subject to equitable distribution. The equity in the home is the difference in the value of the home, less any mortgage which has to be paid at the time of sale, in addition to any other closing costs paid at the time of sale (such as broker’s commissions).

If it is determined that one party is going to retain the house in equitable distribution and it will not be sold, that party is ordinarily obligated to “buy out” the other party’s share of the equity in the property. Usually, that equity is determined based upon the current fair market value of the property, less any mortgage encumbering the property. The calculation of the equity in the house does not take into consideration hypothetical closing costs that would only be incurred in the event of an actual sale.

In addition, the retaining party is usually responsible to remove the other party’s name from any mortgage encumbering the property, and to solely assume that debt. This can be achieved in a number of different ways, including paying off the mortgage in full from the retaining party’s share of equitable distribution, or refinancing the mortgage into the retaining party’s sole name.

As with all equitable distribution claims in New Jersey, “equitable” does not necessarily mean “equal.” Therefore, you should not always assume that each party is entitled to 50% of the equity in a property. The amount or percentage of the equity owed to one party or the other will differ based upon the facts in the case. Examples of facts which could influence a disproportionate division of the equity in real estate include: whether premarital or exempt funds were used to acquire or improve the property; whether the home itself was acquired by only one party prior to the marriage; and the specifics of the division of the other assets in the case.

If you are dealing with the issue of equitable distribution of real estate in your matter, you should seek the advice of matrimonial counsel.

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Cassie Murphy is a divorce and family law Partner with the Law Offices of Paone, Zaleski & Murphy, with offices in Red Bank and Woodbridge.