When I first started practicing family law, everyone had equity in their homes.
Most clients had so much equity that buying their spouse out of their community share usually wasn’t an option because they did not have enough other assets or liquid funds to purchase their ex’s interest.
Times have changed (momentarily) and we have been forced to think of creative alternatives for the disposition of the family home.
Part one of this resource focused on whether or not one spouse had an interest in the property (even if their name was not on the title) and what possible reimbursements either party was owed.
This blog is focused on different options you may have if you own a real property home at divorce. Keep in mind that if you and your ex DO NOT COME TO AN AGREEMENT, the likely result is that the house will be ordered SOLD by the court. If there’s no equity, usually the best option is a short sale (as opposed to foreclosure) and unless you are both looking to get the house off of your shoulders — this is probably not a result you would want. Therefore it may be a good idea to negotiate a settlement — it won’t be perfect but it will limit the ‘damage’.
- Sell the house and split the proceeds. This sounds easy, right? But there are many decisions that need to be made. Who will the realtor be? What improvements if any will be made before the sale? What will the listing price be? At what point do you lower the listing price? What if one spouse doesn’t accept a viable offer? Will either spouse live in the house pending sale? Will they be charged with maintaining the property? Will either spouse be entitled to reimbursement for payment of property-related costs or for the fair market value of the property?
- Purchase your spouse’s interest in the property. Many clients still choose this option. Issues that you may want to consider include, but are not limited to: what is the fair market value, what would a realtor have cost if the house were sold? Does the payee spouse need liquid funds or would a transfer of a retirement account suffice? What will happen to the personal property in the house? Who will claim tax credits associated with the house for the year the property is ‘sold’?
- Deferred sale until the children reach 18. While not a preferred method of disposition by the court, your agreement to defer the sale of a residence may be approved by your judge if the stipulated terms are specific enough. Many people consider this option so that the children have less stress in the transition to two households. Their kids at least keep the stability of remaining in their own homes. When negotiating these agreements, I prefer a ‘self-executing judgment’. In other words, we try to cover many of the unknowns. What will happen if there’s no equity in 10 years? Who will pay for repairs? Taxes? Will one spouse have the opportunity to buy the other spouse out of their share prior to placing the home on the market? Deferred sales may also be a good idea if the property currently has limited equity but is expected to increase in value.
- Assuming the mortgage or refinancing the loan into the name of one spouse: Many times, when there’s no equity, the partners will decide to give one spouse the house (usually one spouse wants to keep it and the other wants to be rid of the obligation). Sometimes refinancing can take a long time or assuming the loan is not an option. What then? Even though there’s no equity, many clients will offer their ex a financial incentive in consideration for remaining on the title and on the mortgage until they can refinance into their own name. This can be a complicated option but seems to be occurring more and more options.
If you have a real property dispute or have other divorce-related questions, schedule a consultation with Hello Divorce today. Best of Luck!