What Attorneys Need to Know About Negative or Low Equity in Divorce (2026 Phoenix & Scottsdale Real Estate Guide)
In many divorce cases, the assumption is simple:
“We’ll sell the home and split the proceeds.”
But in today’s 2026 Phoenix and Scottsdale real estate market, that assumption doesn’t always hold true.
We’re seeing more situations where:
The home has very little equity
The net proceeds are far lower than expected
Or in some cases… there is negative equity, meaning the parties would need to bring money to closing
For attorneys and homeowners alike, this changes everything about how the case needs to be approached.
What Is Negative or Low Equity? (Simple Explanation)
Before we go further, let’s define this clearly:
Low Equity = There is some profit after the sale, but less than expected
Negative Equity = The total costs to sell exceed the home’s value
Why This Matters
In a divorce:
There may be little or nothing to divide
One or both parties may need to contribute funds
Disagreements over financial responsibility become more likely
👉 This is where strategy becomes critical.
Why This Is Happening More in 2026 (Phoenix Market Context)
Several market factors are contributing to this shift:
1. Peak Pricing Purchases
Many homeowners purchased at or near the top of the market in recent years.
2. Market Stabilization
While the Phoenix market remains strong, price growth has leveled out, and buyers are more price-sensitive.
3. Increased Selling Costs
Today’s transactions often include:
Buyer concessions
Closing costs
Agent compensation
These reduce net proceeds.
4. Property Condition Issues
Deferred maintenance or aging systems can further reduce value or lead to credits.
👉 The result:
Paper equity does not always translate into real, usable equity.
The Critical Concept: Net Proceeds vs. Estimated Value
One of the most important distinctions in these cases is:
👉 Value is not the same as what you walk away with.
What Impacts Net Proceeds?
Mortgage payoff
Closing costs
Buyer concessions or repair credits
Liens (solar, HELOCs, etc.)
Agent compensation
Example Scenario
Home value: $550,000
Mortgage payoff: $520,000
At first glance, there appears to be $30,000 in equity.
Now factor in:
~$30,000 in selling costs
👉 Net proceeds: approximately $0
Worse Case Scenario
If additional credits or repairs are needed:
👉 The sellers may need to bring money to closing.
Why This Becomes a Major Issue in Divorce Cases
Low or negative equity situations introduce challenges that don’t exist in traditional sales:
1. Who Covers a Shortfall?
If money is required at closing:
Do both parties contribute equally?
Does one party take on more responsibility?
This often becomes a point of conflict.
2. One Party May Not Have the Funds
Even if an agreement is reached:
One spouse may not have the liquidity to contribute
This can stall the transaction entirely.
3. Emotional Resistance to Selling at a Loss
Selling without profit can be difficult emotionally:
“We can’t sell for that price”
“Let’s wait for the market to improve”
This can delay decision-making.
4. Condition + Low Equity = Compounding Problem
If the home also needs repairs:
The cost of repairs may not be feasible
Selling as-is may reduce price further
Strategic Options When Equity Is Limited
When there’s little or no equity, the strategy needs to shift.
Option 1: One Party Retains the Home
If financially possible:
One party keeps the home
The other is offset with other assets
Considerations:
Ability to refinance
Ongoing affordability
Market outlook
Option 2: Structured Buyout (Without Immediate Refinance)
In some cases:
One party remains in the home temporarily
A future refinance or sale is planned
This requires:
Clear timelines
Defined financial responsibility
Risk mitigation for both parties
Option 3: Hold the Property Temporarily
Delaying the sale may make sense if:
The market is expected to improve
Financial conditions will change
However:
Mortgage liability remains
Risk is shared by both parties
Option 4: Sell with a Clear Plan for Negative Proceeds
If selling is necessary:
Address in advance how any shortfall will be handled
Ensure both parties are prepared financially
👉 Clarity upfront prevents last-minute disputes.
The Importance of Early Financial Analysis
The biggest mistake in these cases is waiting too long to run the numbers.
Early analysis allows:
Realistic expectations
Better negotiation positioning
Fewer surprises during mediation
What Should Be Evaluated Early?
Current market value (CMA)
Estimated net proceeds
Potential repair costs
Mortgage and lien obligations
For Attorneys: How to Navigate Low Equity Cases
If you’re a Family Law attorney, consider:
Identifying equity position early in the case
Preparing clients for realistic outcomes
Exploring alternatives beyond immediate sale
Addressing responsibility for any shortfall clearly
👉 The earlier this is addressed, the more options are available.
For Homeowners: What You Need to Understand
If you’re going through a divorce and your home has limited equity:
You may not walk away with proceeds
You may need to contribute funds
There may be alternative solutions beyond selling
Understanding your position early can help you make informed decisions.
Final Thoughts: Strategy Matters More Than Ever
Low or negative equity situations require a different approach.
The goal is no longer just to “sell and split proceeds”—
It’s to:
Minimize financial loss
Reduce conflict
Create a workable path forward
With the right strategy, even challenging situations can be managed effectively.
If you’re an attorney working through a case with low or negative equity…
or a homeowner trying to understand your options—
I can help you analyze the numbers, evaluate your position,
and create a strategy that aligns with today’s market.
📩 Reach out to discuss your situation.