In the course of a Divorce, the one asset that often causes much consternation is the house. Who gets it? Does it have to be sold? Can he buy me out? The questions are many… but so are the solutions!
The biggest asset in any marriage is usually the house. If the parties don’t own a house, but lease or rent, there is nothing for a Court to consider in equitable distribution and there is one less thing to fight over. But houses come in all shapes and sizes; some are acquired before the marriage by one spouse or another; some are inherited; some are purchased during the marriage. The issues to be determined, or settled, in a divorce are:
- Is the house a marital asset? Meaning was it purchased during the marriage, or perhaps improved to some extent or transferred during the marriage.
- What portion of the house is a marital asset? Houses often have mortgages attached to them. The portion of the house that is a marital asset is really the equity in the house (the value of the house less the outstanding mortgage/home equity line of credit/ etc.) which was accrued during the marriage.
- Is there a separate property claim to the house? Did one spouse buy the house before the marriage? If so, there may be a separate property claim to funds expended in the purchase of the house before the parties were married.
- What are we going to do with the house? Are the parties going to sell it and somehow split the proceeds (or shortfall, under the worst of circumstances)? Will one party buy out the equity of the other and keep the house? Maybe an arrangement can be reached where one party remains in the house until the children reach a certain age and then the house is sold and the proceeds distributed.
These are just a few of the questions that need to be answered before any decision can be reached, by a Court or by the parties themselves, as to what is going to happen to the house. If the house is sold and the proceeds split, the parties, or the Court, must decide whether there will be an even split, or maybe more of the proceeds will go to one spouse than the other. Will there be credits from one party to the other for things like mortgage payments that were made after the divorce was filed that the other spouse failed to contribute to, or tax bills or utility bills and carrying costs during the divorce?
The value of the house is often a sticking point with divorcing spouses. One party will usually want to minimize the value, if he or she is seeking to buy out the other party’s interest, and the other party will seek to maximize the value of the house to increase the buyout. If the house is sold to a third party, the issue takes care of itself and the sale price is the value. Certainly, issues are often raise that one party wants to sell the house to his brother for $10.00 which the other party generally will not agree to, and the Courts do entertain issues like that when considering wasteful dissipation of assets. On the other hand, the parties can often agree to have an independent appraisal of the house done and agree to use whatever figure the house appraises at.
There do arise circumstances where one party seeks to remain in the house until such time as children are grown, or finish high school, or whatever the case may be. The parties can agree to such an arrangement with the proceeds of the sale to be distributed at a later date. I have personally found that local Courts would rather not Order, after a trial in a contentious matter that cannot be settled, that one party may remain in the house for a period of time. While it is within the Court’s power to do so, and an achievable result under the right circumstances I just don’t see it happen that often.
Perhaps the most difficult obstacle to overcome in trying to reach a settlement with regard to a house is financing. The parties may agree on the sale price, credit to one side or the other, the buyout price, and all the associated issues. But when it comes time for one party to actually buy out the other, and transfer title from joint names to sole ownership, our country’s economic downturn rears its ugly head. if there is a 30 year mortgage with both parties on the note, the party being bought out will not want to remain liable for the mortgage for the remaining 20 years. The party buying out the other will have to refinance and somehow remove his or her spouse from the mortgage obligation. While they may have been earning a total of $100,000 per year as a married couple, they each only make $50,000 as singles. The difference, together with a less than stellar credit score can make it extremely difficult, if not impossible, to refinance the house by one party alone. Sometimes this hurdle can be overcome if a co-signer can be found for the new mortgage, but not everyone has a relative or friend willing to go out on that limb. With luck, the strangle-hold that lenders currently have on credit will subside a bit with time and make things easier. For now, difficulties refinancing are a fact of life that cannot be overlooked.
There can be no doubt that dealing with a house is one challenging aspect of a divorce. One should always seek advice of a competent attorney to provide guidance on all the potential consequences of selling, or even contemplating a transfer of the marital residence. The factors to consider are simply too complex for the average John and Jane Smith on the street to really grasp the far reaching issues and ramifications.