Property Division in a Dissolution
Minnesota is an equitable distribution state, but what does that mean for real estate during a dissolution? Real estate is to be treated as any other marital property: so long as the real estate does not qualify for a non-marital exception, it will be divided based on equitable principles. According to Minn. Stat. § 518.58, the Court can consider the following factors in dividing marital property: the length of the marriage, age, health, occupation, amount and sources of income, employability, liabilities, the age of any children of the marriage, and more. That being said, there are three main ways to approach dividing property, including one spouse keeping the home, refinancing the home, and selling the marital home and dividing the proceeds.
Before delving into these options, what are the non-marital exceptions for property? They include property owned by an individual prior to the marriage, inheritances, and any gifts given solely to an individual from anyone other than their spouse. However, non-marital interest is rarely as simple as a yes or no question.
The Marital Home and Divorce
In many cases, one spouse will remain in the marital home and assume all debts and bills associated with the property following the divorce. The other spouse is usually bought out of their interest in the home. Whether or not this number is 50% of the value of the home depends on a variety of factors. For one, what other assets are being divided in the dissolution? Additionally, as hinted at above, what about when one party was the sole contributor of the down payment? The answers to these questions can cause a division of the marital home that is equitable rather than equal.
Non-Marital Interest in Property
So, what happens if there is a non-marital interest in the property that does not encompass the entire property? The Schmitz formula can be used to calculate what percentage of the home came from non-marital funds. The formula accounts for increases and decreases to the home’s value. To demonstrate, consider that one spouse put $30,000 of an inheritance into a home they purchased for $300,000 a decade ago. The Schmitz formula ratio is therefore 0.1 (or 10%), meaning that spouse’s nonmarital claim in the house is 10% of its value. If that same house is worth $500,000 today, that spouse has a $50,000 nonmarital interest. Thus, when dividing the value of the house equitably between both parties, the value of the house to distribute is $450,000, as the remaining $50,000 is already spoken for as nonmarital. Given that nonmarital interest in real estate can have a significant impact on a balance sheet when allocating assets and debts, it is important to retain any documentation demonstrating that nonmarital interest.
Refinancing and Selling of Real Estate
When refinancing or selling the home there are other considerations that may affect the allocation of the home’s value. With refinancing, parties may have to come to an agreement on an acceptable interest rate range for the party keeping the home to assume. If interest rates are currently high, there may be a grace period for the date by which the home must be refinanced. When selling the home, the parties will have to discuss an acceptable listing price, the lowest possible price they are willing to accept, and what happens if there are no buyers within that range. Additionally, realtor and closing costs must be accounted for, as well as any necessary updates to the home prior to selling. It may be helpful to get a neutral evaluation of the home done during the dissolution proceedings to give both parties realistic expectations and to avoid any conflict regarding different opinions in home value.
The above highlights only some of the considerations when dividing real estate in a dissolution proceeding. Every case will be unique and have different factors that influence the division of marital property.
Expert Family Law Representation
At Lake Harriet Law, we work diligently for our clients to obtain the best possible settlement of contested case issues. If you are considering a divorce, contact our team to begin designing a legal strategy to protect your future.
Randall A. Smith – Managing Attorney 612-750-4843
Brianna Attamante – Student Attorney 612-223-8925
Shea Heier – Student Attorney 612-223-8925
Trinity Fritz Lawrence – Student Attorney 612-223-8925