THE MARITAL HOME IN A DIVORCE
One of the biggest financial assets in any divorce is the marital home. Even if you purchased the house before the marriage, the house (or at least a part of its value) may still be considered marital or “community” property. Deciding what you want to do with your house involves examining your finances to decide what makes the most sense. If, for example, you have significant credit card debts from the marriage that you’d like to pay off, it may make sense to sell the house to liquidate those unsecured debts. If the real estate market is going up and you have enough cash or cash and other assets to give your spouse for his or her share of the property, you might want to hold on to the home. In all cases, it is always best to consider all of the tax and financial consequences of all your options by consulting both an attorney and a tax expert.
COMMON SOLUTIONS FOR DEALING WITH THE MARITAL HOME
1 – Does one Spouse or the Other Want the House? To determine whether or not to sell the house or keep it, first ask yourself if you really want the house? The marital house comes with all the memories of your past life up until this point. If the memories are no issues, can you afford to make the mortgage payments including the of repairs and maintenance on your salary alone?
2 – Sell the House. To decide if it makes good financial sense to sell, it makes sense to find out how much the house is worth and how much equity you have. You might also want to consider other factors in your housing market. Are property values going up or down, and has this been steady over the last few years?
You can hire a professional appraiser to value the house, or have one or more competent local Realtors do a Sales Valuation based upon what similar houses are selling for in your area. If you hire a professional appraiser, you should decide beforehand how to pay for the costs of the appraisal. Will each person hire their own appraiser — obviously more expensive — and arrive at a number in the middle somewhere, or will you hire one appraiser and split the fees? When deciding whether or not to sell, you can also ask yourself:
- How easy will the house be to sell?
- What is the market like?
- Will you come out ahead if you decide to wait a while before selling?
- Can you and your spouse agree on a selling price?
- Are other houses in the area selling quickly?
- If you have to make major repairs, will you be able to handle the cost & stress?
- What is the potential “bottom line” equity check going to look like?
- How much will realtor fees, taxes, and other costs be?
- Would capital gains taxes apply to your situation?
- How much equity will you be left with – the “bottom line?”
- How long it would take to sell?
- How will the net proceeds be split when it does sell?
- Who will actually sell the house? One or both spouses, or a realtor?
- When will you sell?
3 – One Spouse Keeps the House and Buys Out the Other’s Share. Half the value of the house could be purchased with cash; with a mix of cash and marital assets; or with a mix of cash, marital assets and extended cash payments made over a specified length of time.
If you go this route, you need to determine how much each spouse’s interest in the home is worth. You may or may not necessarily decide to split your interest in the property 50/50, depending on your circumstances. For example, if the home was owned by one spouse prior to the marriage that spouse may have a more significantly financial stake. This is where an attorney and possibly an accountant should be involved in establishing an equitable number that will be fair to both parties
One spouse attempting to keep the home can get even more complex. Keep in mind that there are other financial and tax consequences not so obvious. For instance, if one spouse will be keeping the house, the other might want to take their name off the mortgage loan. However, if they do this, the remaining person might be in a pinch to re-qualify. If they choose to leave their name on the original mortgage it may then affect them and make it more difficult for them to obtain a loan should they decide to purchase another house. If the spouse keeping the home with your name remaining on the original mortgage gets into difficulties and cannot make the payments the creditors can come after you. Upshot? – There are a lot of details to consider.
4 – One Spouse is Granted Exclusive Use for a Specified Period of Time. After some time limit is up, it is agreed that the house will be sold.
Such a situation might be a good choice if one spouse wants to stay in the home, especially if that spouse had custody of the children, and there are not enough marital assets for one spouse to buy the other’s interest out. Or maybe selling the house right now, because of the housing market or other compelling reason, it is not in the best interest of both for any myriad of reasons.
This arrangement is often the most difficult arrangement, requiring the most amount of amicable cooperation. If you go this route, both of you will be joint owners for a period of time. The spouse not living in the home still has an interest in the property, so he or she will most likely be concerned about how the other spouse is keeping up the property which can be a potential source for future conflict. If you are looking to sever all ties from the marriage, you should avoid this option. If you are going to consider this option, we recommend making decisions up front regarding how the property will be split when it is sold. It is best to create a written agreement – even if some of the terms are speculative and subject to change at the time of sale. We suggest this strongly and suggest you consider:
- Will you value it at the time of the divorce or at the time of sale?
- What if the home greatly increases in value?
- What if the increase is solely due to one spouse’s separate improvements to the property?
- Who pays the mortgage and repairs during the exclusive use period?
- Will that spouse receive credit for their mortgage payments?
- Will the exclusive use terminate upon remarriage or cohabitation of the spouse living in the house?
The 4 options above are the most common ways that a home is dealt with during / after a divorce. Each option will have different effects on your both your financial and emotional life. You should strongly consider any tax benefits and consequences of selling versus keeping the home.
Whatever you decide, when you have Family Law Attorney Laurence Haines on your side, the complex details of any of these options can be worked out, appraisers brought in, the tax and financial consequences worked through, and any necessary agreements drafted to protect you.