Will I Be Forced to Sell My House If I Get Divorced?
One of the biggest concerns clients have about getting divorced is whether they will be forced to sell their house. In most cases, the house is the highest valued asset both monetarily and sentimentally. Whether the couple lived in it for two years or thirty years, the house is usually the hardest asset to part with. Fortunately, if certain criteria are met, one of the spouses will be able to keep the house after the divorce.
Not surprisingly, the key factor in determining whether a spouse can keep the home in a divorce is if they can afford it. This means that one of the spouses will need to buy out the other spouse’s interest in the house. For example, let’s say that the marital assets are being divided equally, and the net equity in the house (fair market value of the house minus the mortgage) is $100,000. This means that the spouse who wants to keep the house will have to buy out the other spouse for $50,000 ($100,000 x the other spouse’s 50% interest). This buyout could be in the form of cash and/or by transferring more from other assets like retirement or investment accounts to hit that $50,000 amount.
Assuming one spouse is able to buy out the other, the next step is to look at whether the spouse is able to refinance the mortgage into their own name. If both parties are on the mortgage, the spouse leaving will typically not want to remain on a mortgage for a house they no longer own. If the purchasing spouse is unable to qualify for a new mortgage, this could mean the end of the process and the house may have to be sold. The parties are of course free to make exceptions to this and sometimes a spouse will agree to stay on the mortgage for a period of time to allow the other spouse more opportunities to refinance. This is where being able to work together amicably can really pay off!
If the parties cannot agree on who should keep the house, they will have to look to the court to decide who should ultimately retain it. The court will then consider certain factors in deciding who should keep the house. Similarly to the above, the court will look at the financial circumstances to determine who is able to afford the purchase of the house as well as its upkeep. Often times, parties look past the monthly upkeep aspect when they say they want to keep the house. Instead of having two sources of incomes to pay the mortgage, homeowner’s insurance, real estate taxes, utilities, etc., once the house is transferred, all of that is left to the spouse remaining in the house. It would be a waste of time and resources to buy out a house to only then be left with a mortgage and household expenses that you cannot afford. In the event there are children, the court would also take the custody schedule into account. If one spouse has the kids for the majority of the time, the court would be more inclined to award the house to that parent. The court tries its best to have the children remain in their same home to limit the amount of disruption caused to them by the divorce.
In the event that neither spouse is able to afford the house or maybe both are just looking for a fresh start, then the house would be put on the market and sold. This process can begin at any point. The parties do not need to wait until the divorce is finalized or even for a divorce complaint to be filed in order to list the house. However, because of the tax consequences associated with the sale of a house, the timing of when the house is sold and how the parties file their taxes can make a difference. I always discuss these issues with my client and their accountant to make sure that we consider the tax ramifications and do not unnecessarily leave any money on the table.
So if you are in the process of getting divorced or are thinking about getting divorced and have questions regarding your home, you should always consult with an experienced family law attorney to discuss the specific facts of your case.