Real Estate & Divorce Blog: What Happens to Real Estate in a Divorce When One Party Has Sole Ownership?

Divorce can be an emotionally charged and financially complex process, especially when it comes to dividing assets. Real estate is often one of the largest and most valuable assets a couple owns, and if one spouse holds sole ownership of the property, it raises unique questions about how that property should be treated during the divorce proceedings.

In this blog, we’ll explore what happens to real estate when one party has sole ownership during a divorce, including the legal, financial, and emotional aspects to consider.

Understanding Sole Ownership in a Divorce

Sole ownership means that one spouse is listed as the sole owner of the property, whether it’s the family home, an investment property, or a vacation home. The property may have been purchased before the marriage, received as a gift or inheritance, or bought with separate funds during the marriage.

However, the fact that one spouse holds title to the property doesn’t necessarily mean they automatically get to keep it after the divorce. How the property is treated largely depends on the jurisdiction and whether the state follows community property or equitable distribution laws.

Community Property vs. Equitable Distribution

• Community Property States: In community property states (e.g., California, Texas), assets acquired during the marriage are generally considered joint property, regardless of whose name is on the title. Even if one spouse owns the property outright, the other spouse may be entitled to half of its value upon divorce.
• Equitable Distribution States: In equitable distribution states (e.g., New York, Florida), the court divides marital property in a way that it deems fair, but not necessarily equal. If one spouse owns the property solely, the court will assess the circumstances and might award the other spouse a share of the property’s value or offset the distribution with other assets.

Factors That Determine the Outcome

When a couple divorces, several factors will influence how a property held in one spouse's name is handled:

1. How the Property Was Acquired:

   • If the property was acquired before the marriage or through a gift or inheritance, it is typically considered separate property. However, if marital funds or effort (e.g., renovations or maintenance) were used to enhance the property’s value, it may be considered marital property.
   • If the property was acquired during the marriage, it may be subject to division, even if only one spouse's name is on the deed.

2. Financial Contributions and Efforts:

   • If both spouses contributed financially to the upkeep, mortgage payments, or renovations of the property, this could lead to a claim for a portion of the home’s value, even if one spouse holds sole ownership.

3. State Laws:

   • The laws in your state will ultimately determine how property is divided. Community property states typically consider the property as jointly owned, while equitable distribution states take a more nuanced approach.

4. Prenuptial or Postnuptial Agreements:

   • If the couple has a prenuptial or postnuptial agreement that specifically addresses property division, those terms will be followed in the divorce settlement.

5. The Property’s Equity:

   • The amount of equity in the property plays a significant role in determining how the asset will be divided. If there is substantial equity, the non-owning spouse may receive a portion of it, or the spouse with sole ownership may need to compensate the other with other assets to achieve a fair division.

Possible Outcomes for Solely Owned Property

1. The Spouse with Sole Ownership Keeps the Property
   If the property is considered separate property (e.g., inherited or purchased before the marriage) and the non-owning spouse has no legal claim, the spouse with sole ownership may retain full ownership of the property after the divorce. However, this may be offset by other assets in the division process.

2. The Non-Owning Spouse Receives a Share of the Property’s Value
   In many cases, the non-owning spouse may be entitled to a share of the property’s value, especially if it was acquired during the marriage or if they contributed to its upkeep. This could be achieved through a sale of the property or by awarding the non-owning spouse a lump sum or other assets to make up for their share of the value.

3. The Property is Sold and Proceeds Divided
   Often, when one spouse is unwilling or unable to keep the property, the home may be sold. The proceeds from the sale are then divided between the spouses, typically according to the laws of the state. This allows both parties to receive a fair share of the asset’s value.

4. One Spouse Buys Out the Other’s Share
   If one spouse wants to keep the property, they may be able to buy out the other spouse’s share of the equity in the property. This usually involves refinancing the mortgage to remove the other spouse’s name from the deed and title.

Emotional Considerations and Practical Steps

Dividing property in a divorce is not just a legal matter; it’s an emotional one as well. If the marital home is involved, it can be particularly difficult for both parties to let go of the emotional attachment. In these cases, it’s important to consider:

• Mediation or Collaborative Divorce: If both parties want to avoid a lengthy court battle, mediation or a collaborative divorce process can help facilitate a fair and peaceful resolution regarding the property.
• Consulting with a Real Estate Agent: If selling the property is part of the divorce settlement, it’s helpful to consult a real estate agent who is familiar with divorce-related transactions.
• Financial Planning: Consult a financial planner or divorce attorney to understand the long-term impact of dividing real estate assets and to ensure that both spouses are financially protected after the divorce.

Conclusion

When one spouse holds sole ownership of real estate during a divorce, the outcome depends on various factors, including how the property was acquired, state laws, and the financial contributions of both parties. It’s crucial to understand your legal rights and work with professionals to ensure a fair and equitable distribution of assets.

If you’re navigating the complexities of real estate and divorce, consulting with a divorce attorney and a real estate expert can help you make informed decisions about how to proceed with your property division.