September 7, 2011
Milot on the Allocation of Home Equity in Divorce
Lisa Milot (Georgia) has posted Accounting for Time: A Relative-Interest Approach to the Division of Equity in Hybrid-Property Homes Upon Divorce. Here's the abstract:
Even in these troubling economic times, homes are the most valuable asset many Americans own. In many instances, these homes were purchased prior to marriage, with later mortgage payments made after the homebuyer married. On divorce, courts must divide the value of such a “hybrid-property” home into “separate” and “marital” shares prior to distributing it between the divorcing spouses.
Many courts have developed formulas for this purpose, with a goal of providing a “proportionate and fair return” on both the separate and marital investments in the home. Each of the formulas, though, ignores the timing of the investments, both in relation to other investments and relative to when the home’s changes in value occurred. As a result, the formulas fail to produce a division that is either proportionate or fair and, instead, systematically and invisibly transfer large amounts of wealth between divorcing spouses.
This Article argues that current approaches to the allocation of equity in hybrid-property homes upon divorce represent a misalignment of legal rhetoric and legal reality which must be acknowledged and resolved. Based on the predominant approach to the division of hybrid-property defined-contribution retirement plan accounts, the Article develops a “relative-interest” approach to dividing the equity in hybrid-property homes and shows how the approach can be applied in practice. Of particular importance, the Article highlights how, as technology develops, existing rules must be reassessed to ensure that they remain properly structured to address the goals they profess to advance.
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