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, at least momentarily, and we have been forced to think of creative alternatives for the disposition of the family home.
Looking back on Part One
Part One of this resource focused on whether 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.
Options covered in Part Two
This blog focuses 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, the best option is usually a short sale (as opposed to foreclosure). But unless you both want to get the house off of your shoulders, this is probably not a result you’d want. Therefore, it may be a good idea to negotiate a settlement. It won’t be perfect, but it will limit the damage.
Option: Sell the house and split the proceeds.
This sounds easy, right? But many decisions must be made. Think about the following questions:
- Who will the realtor be?
- What improvements, if any, will be made before the sale?
- What will the listing price be?
- At what point will you lower the listing price?
- What if one spouse doesn’t accept a viable offer?
- Will either spouse live in the house pending sale? If so, 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?
Option: Purchase your spouse’s interest in the property.
Many clients still choose this option. Issues you may want to consider include, but are not limited to, the following:
- What is the fair market value?
- What would a realtor 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?
Option: Defer sale until the children reach 18.
While not a preferred method of disposition by the court, a judge may approve deferring the sale 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?
A deferred sale may also be a good idea if the property currently has limited equity but is expected to increase in value.
Option: Assume the mortgage, or refinance the loan in the name of one spouse.
Many times, when there’s no equity, the partners 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 may not be an option. What then?
Even though there’s no equity, many clients offer their ex a financial incentive in consideration for remaining on the title and on the mortgage until they can refinance in their own name. This can be a complicated option, but it seems to be occurring more and more often.
If you have a real property dispute or other divorce-related questions, schedule a consultation with Hello Divorce today.
Best of luck!