When a marriage or de facto relationship breaks down, dividing assets can become one of the most challenging aspects.
For couples in Western Australia (WA), understanding how divorce and home equity are handled in a divorce is crucial, especially when disagreements arise.
As long-time experts in this area of law, our guide below explains the key considerations and processes involved in home equity division during divorce. It will hopefully offer clarity to the question of how property is split in a divorce for those navigating this complex situation.
Property Division Through Divorce – Overview
In WA, property division during a divorce follows the Family Court of Western Australia’s principles of fairness and equity. It involves identifying, valuing and distributing all marital assets, including home equity.
When couples cannot agree on the division of assets, the Court could be asked to determine a fair outcome. Whether you’re considering a divorce home equity buyout or need a broader settlement involving your property, understanding the Court’s approach is essential.
What Is Home Equity?
Definition
Home equity is the portion of your property that you truly own. It’s calculated by subtracting any outstanding mortgage balance from the current market value of the home. For example: If your property is valued at $500,000 and you owe $200,000 on the mortgage, your home equity is $300,000.
How Home Equity Is Calculated
Accurate valuation is vital when splitting home equity. In a divorce, the Court often relies on property appraisals by independent valuers or real estate experts to ensure fairness.
Both partners should agree on the valuation to prevent disputes.
Is Home Equity Considered A Joint Asset In Divorce?
In most cases, yes. Home equity is considered a joint marital asset, regardless of who is listed on the title. The Court views the family home as a shared asset that both parties have contributed to, whether financially or non-financially (e.g. through homemaking or child-rearing efforts).
The Court’s Home Equity Division Process
Asset Valuation
Before any division takes place, all marital assets must be valued. This includes not only the family home but also other properties, vehicles, superannuation and personal belongings. Transparency and accuracy during this stage are critical to ensuring a fair settlement.
Decide If A Property Settlement Is Required
Couples can attempt to negotiate an agreement themselves or may do so with the help of mediators. If negotiations fail, a property settlement through the Court could become necessary. This often includes a home equity loan divorce settlement if one party wishes to retain the home.
Determine Property Orders
The Family Court can issue property orders to divide the marital assets, including home equity. Orders may include the sale of the property, refinancing or a divorce home equity buyout, where one partner compensates the other for their share of the equity.
The Court’s Approach To Dividing Property – Considerations
The Court applies a structured approach to determine an equitable distribution of assets, considering several key factors:
Income Earning Capacity
The Court assesses each party’s ability to earn an income, including their qualifications, career prospects and current employment status. It also considers any disparities in earning potential that may have arisen during the relationship, such as one party taking time off work to raise children. If one partner has limited earning capacity due to a lack of skills or qualifications, the Court may adjust the asset division to reflect this imbalance.
Future Needs
If one party has greater future needs due to age, health or financial dependency, the Court may allocate more resources to them. For example: A party with a chronic illness or limited ability to work may receive a larger share of assets to ensure financial stability. The Court will also consider the likelihood of each partner’s financial situation improving over time when determining asset division.
Parental Responsibilities
When children are involved, the Court prioritises their well-being. The primary caregiver may be entitled to a larger share of home equity to maintain stability. Ensuring that children can remain in their familiar environment – such as staying in the family home – can become a critical factor in the Court’s decision-making process. Additionally, the Court can evaluate each parent’s capacity to meet the children’s financial and emotional needs post-divorce.
Previous Contributions
The Court examines financial contributions (e.g., income used to pay the mortgage) and non-financial contributions (e.g. homemaking, child-rearing and property maintenance). Non-financial contributions are usually equal weight to financial ones, recognising the value of unpaid work in building family assets. Contributions made before the relationship, such as an initial deposit for the home, may also be taken into account when dividing assets.
Remaining ‘Just And Equitable’
Ultimately, the Court aims to achieve a settlement that is just and equitable, reflecting the unique circumstances of each couple. This does not necessarily mean an equal split, since fairness depends on the overall context, including future needs and past contributions. The Court will carefully balance all factors to ensure neither party is left at a significant disadvantage after the divorce.
Home Equity FAQs
Who Gets To Keep The House?
The decision about who retains the family home depends on several factors, including the couple’s ability to refinance, the best interests of the children and whether either party wishes to retain the property. If neither party can buy out the other, the Court may order the property’s sale, with proceeds divided equitably.
What If My Partner Owned The House Before Marriage?
If one partner owned the home before marriage, its pre-marital value might be considered their contribution. However, any increase in equity during the relationship is typically treated as a shared asset.
How Does Refinancing Work In Divorce?
A divorce home equity buyout often involves refinancing. For example: If one partner wants to keep the home, they might refinance to secure a loan that pays out the other party’s share of the equity.
Note that legal advice and financial advice are critical to navigating this process smoothly.
Get Legal Help For Property Matters
Navigating divorce and home equity disputes can be overwhelming, especially when emotions are high, children are involved and agreements are elusive.
At Genuine Legal WA, we specialise in resolving property matters, including how home equity is split in a divorce. Whether you’re considering a home equity loan divorce settlement or exploring your options for a buyout, our experienced lawyers can guide you through the process.
Book Your Free Consultation
Don’t face these challenges alone. Genuine Legal WA’s lawyers are highly experienced in handling property matters regarding home equity during divorce.
For any enquiries regarding divorce and home equity, book a free consultation today to ensure your rights and interests are protected.