Q: We own a $200k house and have a $100k mortgage. My wife says she only owes me half the current equity ($100k / 2 = $50k)

A: You are correct. In a dissolution of marriage proceeding, the court will probably equally split the net equity in the home. Net equity is determined by subtracting the amount of the encumbrance from the fair market value of the property. If the mortgage is actually in the process of being refinanced, the court may also deduct the costs of refinance from the fair market value.

A: Her math is off - it should be, she owes you 1/2 the total value of the house - 1/2 of the mortgage, based on her idea of splitting things evenly. In reality, the divorce court looks at the house as being transferred to the spouse taking the house along with the secured value and the spouse giving up the house get's 1/2 of the net equity. The mortgage doesn't matter for the calculation because it is going to be paid by the spouse that takes the house as part of an on going purchase. The net equity is how far you have come so far in making a profit off the house. You take one half of the profit, and she takes the house and pays more on the mortgage and increases the future profit margin, in theory. She also takes all the risk and will pay any sales and closing costs in the future when she sells.

You have another problem that you haven't addressed. If the mortgage is in your joint names there is no way that the divorce court can simply order that you are removed and only your wife is liable. The lender isn't subject to the court's orders in the divorce. So the lender will treat both of you as still liable and your credit will be hurt if she default. You should never do a divorce such that you transfer the real property and remain liable on a joint mortgage. You have the right to insist that the party who wants the real estate has to refinance in their own name or that the house gets sold and both parties split the net equity after the sales costs are paid. The exception is when there are children involved. The parties may agree or the court may order that the parent who has primary custody can stay in the house for a period of time, maybe 5 years, at which time the house has to be sold or refinanced to remove the other parties name. You would also want a clause that if the custodial parent gets behind in the mortgage payments the sales date is accelerated. You would get a lien against the house for your net equity with 9% interest (the statutory rate for judgments - you can negotiate and agree to a different rate but this is the default rate). The party staying in the house gets all the write-offs for the mortgage and tax payments. Alternatively, by negotiation and agreement, you could agree to continue joint ownership and payments like a joint investment for a period of time. The court won't order this but you could agree to this. However, be aware that once you move out you may get less favorable tax treatment for your share of the equity when the house sells. I believe the rule is you have to have lived in the house for 2 out of the last 5 years. Check with a tax person to see how this will work because there may be exceptions. What this means is that you will have to report and pay capital gains tax on your share and you will lost the ability to claim the exemption for home ownership which is up to $250k tax free per person. Divorce settlement agreements require careful planning and financial analysis, you also have to analyze how well your spouse will cooperate in performing the agreement. Because divorces are often painful and acrimonious, sometimes it is just better to make a clean split, which immediately selling the house or refinancing will provide. Also if there are other joint debts, you can advocate that the house be sold and the proceeds used to pay off all joint debts, with the remainder being split. Courts will generally favor the plan that best separates the parties and eliminates joint liabilities. The courts only tend to deviate from this when young children are involved, but only with a temporary grant of the house to the custodial parent so the children can live there a bit longer.

A: PS Mr. Bernabei's point on sharing the refinance cost is an interesting one. I think there are arguments for not doing that as well. Your spouse will end up with a house in which she will be building equity and will be getting tax write-offs for years to come, while you, I assume, will be living in a rental at least for while. The refinance costs can often be rolled into the new mortgage making it easier for your spouse to absorb the cost. That way you, who no longer has a house to live in, will get a little bit more money with which to start your life over. Arguable you will also face paying loan costs if you buy a house, and your spouse won't help split that. I suppose this point is negotiable or arguable if the court is going to decide. It probably depends on the relative financial circumstances of the two spouse. In some cases absorbing the refinance cost might be critical for the spouse to get a loan. In other cases, where your spouse has a good income, it might not matter.