Should You Keep the House in the Divorce?
Divorce represents a major change for you as well as for your children. When you and your spouse decide to separate or officially file divorce proceedings, one of the biggest decisions you will face is what to do with your family home. There are many factors to consider and there is no right answer for everyone.
Your home, whether it is a house, condominium, co-op or apartment, is usually the most expensive marital asset and the decision about whether or not to remain in the home is emotional as well as financial. All the factors need to be considered and this can be difficult, especially early on when you are still getting used to the idea that your life is headed for a major change.
There are basically four choices available:
- You can buy your spouse out and refinance the home in your own name.
- Your spouse can buy you out, allowing you to obtain your equity in the home while he/she refinances the home into his/her name.
- You can put the house on the market immediately or within a relatively short period of time and share the proceeds.
- You can delay the sale of the house while you (or your spouse) live in the house for a specified period of time, usually until a life event happens like your children all graduate from high school, until the market improves, or sometimes until finances/credit scores improve, etc.
Within each of these choices there are variations of course and its important to talk through all your alternatives with your divorce attorney.
If you both have your names on the mortgage, if one of you wants to stay in the home, the person who wants to stay will have to refinance the mortgage into his/her own name. This releases the spouse that is moving out from liability should the remaining spouse default (pay late) on the mortgage and it frees up his/her credit so that they can then possibly purchase/rent something new. As part of the refinance, unless there are other assets to draw from or “trade off”, the remaining spouse must also pay the leaving spouse for his/her share of the equity. For example, if the house is worth $400,000 and there is a $200,000 mortgage on the home, the home would typically be refinanced with a $100,000 cash out so that the new mortgage is $300,000 and the spouse that is leaving gets $100,000. Again, there are alternatives: sometimes a spouse will trade his/her share of other assets (bank accounts, investments, pension, etc.) for the equity in the home. Sometimes the spouses will be sharing it 50/50. Everyone’s case is unique.
If neither party wants to stay in the house, then it will usually be listed and sold. The parties will agree on a realtor, a selling price, improvements/repairs that need to be done (usually per the realtor’s recommendations) and list it for sale. When sold, the parties share in the proceeds: normally 50/50 but again, there are exceptions.
Delay the sale. Sometimes, especially when there are children who are juniors/seniors in high school, parties will agree to delay the sale while the custodial parent and children remain in the house. It is very important to have an attorney draft an agreement specifying who will be responsible for payment of minor repairs/upkeep, major repairs/improvements, the mortgage, taxes, insurance, utilities, etc. as well as whether the person paying the mortgage will get a credit for paying down the principal at the sale. Sometimes the market is just not favorable and it would be better for both parties to move out and rent the house.
There are a number of factors to consider when deciding which is the right choice for you.
- Can you afford to stay in the home? Think about not only the mortgage/home equity payments but the cost of maintenance/repairs, taxes, utilities.
- Is it a good time to sell?
- How will your children react to moving?
- How will you and your children cope with living in the house with all the memories associated with it once your spouse is gone?
- Can you physically handle the maintenance required on the house?
- Would it be better to just start fresh – financially and emotionally?
- Would you need a co-signer to qualify for a mortgage?
- Is it a seller’s market?
- Are you upside down on the mortgage?
Deciding what to do with the family home is a complicated decision. Take your time, gather all the facts and talk with your lawyer before making a decision. You’ll be glad you did!
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