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General Treatment of Real Estate in Minnesota Divorce Cases

It often happens that one spouse or the other has a house prior to the marriage, but with an outstanding mortgage, which is in part paid off during the marriage. The Court has developed methods for apportioning the value of such real estate to give one spouse credit for his or her non-marital interest, while giving the other spouse credit for half of the value of the equity increase in the house during the marriage. Note that it does not matter which party wrote the mortgage checks every month. Earnings by either party during the marriage are marital earnings, and to the extent that the parties acquire increased equity in a piece of real estate during the marriage as a result of paying down the mortgage with marital earnings, the increased equity is treated as marital property. The formulas for calculating these interests are complicated, but basically, a party’s non-marital interest is calculated as follows: first, one calculates his or her non-marital interest at the time the property was acquired. This is calculated as a percentage. It is equal to the ratio of non-marital equity in the property at the time it was acquired to the fair market value at that time. For example, if you have a house worth $100,000 on the date of marriage, with a remaining mortgage balance of $60,000, then you have a 40% non-marital interest in the house. [1] This percentage non-marital interest remains constant, regardless of whether the property appreciates or depreciates in value during the course of the marriage. Now, to determine your non-marital interest at the time of the dissolution as a dollar figure, you simply multiply the current fair market value by the same 40%. So for example: if the fair market value of the same house at the time of the dissolution is $120,000 because of passive appreciation, and the remaining mortgage balance is only $40,000 because $20,000 was paid off during the marriage, then your non-marital interest would be $48,000 (40% of $120,000. The remaining equity of $72,000 would be the parties’ marital interest, and subject to apportionment as part of the total marital estate. This formula applies even in cases where the original mortgage was refinanced during the marriage. [2]

Footnotes:

  1. Schmitz v. Schmitz, 309 N.W.2d 748 (Minn. 1981).
  2. Antone v. Antone, 645 N.W.2d 96 (Minn. 2002).

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