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Minnesota Divorce LawAbout a decade ago, nearly every divorce in which involved a home provided the couple some equity value in that home, which was then to be divided as part of the divorce settlement.  Home equity is the difference between the home’s fair market value and the outstanding balance of all liens on the property. The property’s equity increases as the owners continue to makes payments against the mortgage balance, and/or as the property value appreciates in value. Home equity is often referred to as real property value.
Before many of the new divorce laws and amendments, houses were an asset, and the spouses could sell the house, and divide the proceeds; or one of the spouses could buy out the other spouse’s interest in the house.  In the latter case, one spouse would be given a financial settlement for the asset he or she would be leaving behind.

Important Changes
The housing debacle caused scores of foreclosures and short sales.  Although the market is slowly in rebuild and repair mode, that does not change the reality for many divorcing couples that their house has value at or below the balance owed on their mortgage or what is known as an “underwater mortgage.”  This in turn can create many added problems and unforeseen circumstances when filing for and having a divorce processed.

The Pitfalls of Negative Equity
According to Minnesota Divorce Law, Negative Equity is defined as when the value of an asset used to secure a loan is less than the outstanding balance on the loan. In the case of a house with negative equity, if one spouse leaves the house behind during the process of a divorce, this means that  the other spouse is left, not with an asset, but with a liability. The spouse who is left with the liability may believe that the departing spouse should pay something towards the debt on the house.

This is why it is of the utmost importance to have your affairs in order, set guidelines and even draw up a prenuptial agreement, in the case of anything like this. Having these on hand, and legally drawn up, save any ongoing hassle as far as who owns what and who pays for what when dissolution occurs.

The difficulties that lie in a situation such as this is that the house may end up in foreclosure, or a short sale, or the spouse who stays in the house may be able to negotiate with the bank on the mortgage.  In other words, the spouse who stays may not end up realizing the entire “negative value,” so to receive from the departing spouse a “full accounting” of the negative value may result in something of a windfall to the spouse who stays. This, of course, is all dependent on the situation and varies on a case by case basis.

Added Factors
Now, other things must be and will be included in the equity and its calculations and effect on a divorce. If the couple has children, one spouse may stay in the house to avoid, or delay, the children’s move to another house. The departing spouse is incurring the expense of renting, which offsets the expense to the remaining spouse to continue to make payments on the mortgage.

It is important that you know just how the laws are changing in your state in regards to anything concerning Family Law, when divorce is on the horizon. The State of Minnesota has implemented these rules and changes under its Zero Equity clauses. Knowledge is power, and power is needed when trying to garner anything in a divorce case.

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