I am getting a divorce- what do we do with the marital home?
For many couples the marital home is their most valuable asset. As a result, one of the most important decisions that needs to be made is what to do with the property as part of the divorce. This article is going to address the most common ways to address this issue, as well as some of the details that should be considered when making such decisions.
One option is to sell the house. There are many litigants who believe that saying in their divorce agreement that the house will be sold with the proceeds divided is satisfactory. The reality is that in order to protect everyone moving forward, more attention to detail is required. The relevant issues can be lumped into three categories. The first category concerns getting the house listed for sale. Questions to discuss include the selection of the realtor, establishing the listing price, accepting offers, handling repairs & improvements suggested by the realtor, and keeping the property in an appropriate condition to show to perspective buyers.
The second category concerns what happens with property until it is sold. Who is going to reside in the house? Are there limitations on a party’s access to the house? How are the bills going to be paid until the house is sold? What happens if something damaging happens to the property before it is sold? Thought also must be given to the possibility that it will take time to actually sell the house on the open market.
The third category concerns how to address the sales proceeds. Any outstanding mortgages will need to be paid, as well as broker and settlement charges. After that, the net sale proceeds will be divided. But, sometimes there are credits or adjustments that will need to be made from the proceeds as part of some other requirement under the divorce agreement. These various issues, if applicable to your situation, should be discussed as part of the overall divorce agreement.
Another option is for one party to retain the house. But, just stating in the divorce agreement that one spouse is going to keep the house is not enough. As with selling, there are a number of details which need to be attended to as part of this decision. You must first look at the deed to your home. Are both spouses’ names on the deed? If that is the case then to transfer ownership interest a new deed will need to be prepared whereby one party transfers their ownership interest to the other spouse. Once this new deed is filed with the county clerk the receiving spouse now has sole ownership interest in the property. If the deed is only in one spouses’ name and that spouse is retaining the property, than a new deed will not be required.
However, transferring ownership interest by way of deed is only part of the picture. You also need to look at the mortgage (or multiple mortgages and/or liens) that are on the property. Unless specifically agreed to the contrary, typically the party retaining the property will need to remove the spouses’ name from the mortgage(s). This is typically done by way of a refinancing whereby the retaining party will take on a new mortgage in their name alone which will (a) pay off the joint mortgage and (b) provide funds for a buy-out in the event that there is an equity payment owed to the vacating spouse.
Equity in a property is calculated as the difference between the fair market value and the balance of the mortgage(s). For example, if the property is worth $200,000 and the mortgage balance is $120,000 then there is $80,000 of equity in the property. How does one calculate fair market value? Unless the parties agree to stipulate to a specific figure, typically the property is appraised. Please note that the property’s tax assessment value does not necessarily equate to the true fair market value. Once the equity is calculated, there must be an agreement as to how much of this equity will be given to the vacating spouse.
For a party thinking about retaining the home the first question that you should ask is whether or not you can afford it. Using the scenario in the last paragraph, lets assume that one party wants to retain the property and pay the other party $40,000 representing fifty percent of the equity. That person would need to refinance and obtain a mortgage of at least $160,000 to pay off the existing mortgage of $120,000 plus the $40,000 to the vacating spouse. Not only do you need to qualify with a lender to obtain such a mortgage, you must also scrutinize your budget to make sure that you can afford the payments going forward. It is recommended that you talk to a mortgage broker or someone similar to review your situation.
Another option is to delay making a decision altogether. Sometimes called a deferred disposition, divorcing spouses can wait before making a final decision as to selling or retaining the marital home. One fairly common scenario is where the parties wish to continue to retain the home to allow for a child to finish school. The actual sale or retention of the property will not occur until the future triggering event is reached. Sufficed to say, there are many nuances that would need to put in an agreement providing for this deferred disposition, many of which are too detailed for this article.
The bottom line is that there is much to consider when thinking about what to do with the marital home as part of a divorce. It is recognized that there may be a certain emotional attachment to your home. Notwithstanding, you are strongly encouraged to analyze the financial feasibility and impact of such a decision before you commit yourself one way or the other.
All of the attorneys at Domers & Bonamassa are well versed and have years of experience addressing family law issues, no matter how complicated. Contact us today at (856) 596-2888 for a private consultation. We appear in the following counties: Burlington, Camden, Gloucester, Cumberland, Salem, Mercer, Ocean, Atlantic and Cape May. Our practice areas include: divorce, custody, parenting time, child support, alimony, domestic violence, college expenses, equitable distribution, name changes, step parent adoptions, paternity issues, child abuse and neglect, prenuptial agreements, mediation and arbitration.
This posting is provided by Domers & Bonamassa, P.C. for their clients, advisors and other interested persons. Since technical information is presented in a generalized fashion, the communication is not meant to replace the need for competent professional advice and the reader should understand that the information contained in or made available through this communication is not intended to be a substitute for the services of trained professionals. As such, the reader should evaluate and bear all risks associated with the use of any comments, including any reliance on accuracy, completeness, or usefulness of such content.
