Who Gets the House? Real Estate Matters in a Divorce
Divorce presents a wide range of financial issues to discuss. Division of property can be complicated, including determining what to do with one of the common assets from a marriage -- the family home.
If you and your spouse own a home during the marriage, and you did not sign a prenuptial agreement or receive the home as an inheritance or gift, there are several ways to handle the division of the marital residence in a divorce. Below are common questions we get in family law as it relates to home ownership in divorce.
What do I need to do to keep the house?
If your wish is to keep the home, and both parties agree, there are many things to consider. The desire to stay in the family residence may be more sentimental than realistic, and so it is critical that you seriously analyze your monthly budget/expenses to see whether you can afford the house. Consider the size of the home, property taxes, utility payments and family needs.
Also consider upkeep of the home as it relates to expenses. Are you someone who can maintain a home, or do you need to hire for services like yard work, housecleaning, repairs and such? Home maintenance takes time, as well.
Remember that divorce likely reduces your income by at least half while in many cases doubling family expenses. Breaking into two separate households means two mortgage (or rent) payments, home insurance and property taxes times two, in addition to likely doubling health insurance costs for the separate households. If you are buying out your spouse’s equity in the home, your mortgage payments alone could double (or more) – again, on much less household income.
After analyzing these expenses and your net income, is the home still affordable? If so, you need to meet with a lender so you can refinance the mortgage note on the residence and remove your spouse’s name from the note. There is usually a time frame after the divorce where you can refinance. If criteria is not met, you may need to sell the residence.
What if my spouse wants to buy out my equity in the house?
Under this scenario (and regardless of which spouse decides to keep the home), you will want the value of your home appraised, and you will need to execute a Quit Claim Deed. Your spouse should refinance the underlying note and mortgage, which allows him/her to pay you your one-half of equity in the residence. It also removes your name from the underlying mortgage so it does not affect your credit in the future. If your spouse is not able to do this by a certain time period, he/she may be forced to sell the residence.
May I purchase another home before the divorce is final?
This may be possible, but note that your spouse may have a marital interest in your new property. If your spouse agrees, this may be dealt with by executing a Stipulation and Order reflecting that the new property and the debt associated with it is solely yours. If your spouse is not in agreement, you may be able to have the matter addressed by the family court commissioner. However, the court commissioner may be reluctant to allow you to purchase a new residence if it is going to have an impact upon your spouse’s credit in the future.
Is it possible for me to purchase a house even though I remain on the note and mortgage for our married home?
It could be highly difficult for you to purchase a new residence if your name is on the mortgage note for the marital residence. However, whether or not a lender will assist you in buying a new home under these circumstances depends on the lender. If there is a Court Order that requires your ex-spouse to make the mortgage payments and he/she has consistently done so, the lender may not hold that obligation against you in terms of qualifying for a new note and mortgage.
What is the process if my spouse and I decide to sell the family home when dividing property in our divorce?
If neither you nor your spouse wants or can afford the family home on a single income, then the process of getting your house on the market should begin as soon as possible. It takes time to get a property ready to show, and costs may be incurred in doing so.
Regardless of whether the home is sold before or after your divorce is final, both parties need to agree on the amount of money (percentage of the equity payout) that each spouse gets from the sale of the home. If your home sells for less than what is owed, then you and your spouse must decide how to handle payment to your mortgage company.
While divorce attorneys are familiar with general division of property, it is usually advised that you hire a realtor to help specifically with the sale of the home.
When dividing assets like a house in divorce, it’s important to look at the big picture of your finances as a married couple compared to your future finances as a single person.
If you plan to remain in the family home after you are divorced, there may be ways to reduce your monthly mortgage payment or the amount of the mortgage note. For example, you could transfer money from a 401K or other investment account to your spouse to help pay off his/her equity in the home. Or your spouse could keep other property such as owned vehicles or a boat to help offset the value of your home.
Overall, it is advised to be conservative when it comes to finances and divorce. Too often, divorced individuals do not properly analyze their expenses and future income before making the decision to keep the family residence. As a result, it is not uncommon for people to file for bankruptcy following a divorce.
It is possible to have a sustainable financial lifestyle, however, if you plan wisely before the divorce is final. The family law attorneys at Murphy Desmond can help you with property division and other matters related to your divorce.
When your divorce is final, you are encouraged to update your estate plan and beneficiaries of all financial accounts including life insurance, 401K and other payable on death (P.O.D.) accounts such as savings, mutual funds, and more.