The marital home is often the largest asset in a marriage, and with a divorce, there are many things to consider before you or your spouse make a decision on what to do with it.
There are three common options for the marital home in a divorce:
Sell the house and divide the assets (if any)
One spouse ‘buys the other spouse out’ — the purchasing spouse refinances the purchase in their name only
One spouse stays in the house for a pre-determined amount of time (e.g. until the kids graduate, or until the end of the school year; or until one spouse finishes grad school, etc.) ( = Deferred distribution)
Let’s take a look at each of these.
1. Both parties agree to sell the house and divide the assets.
This is often the cleanest route when looking at dividing the marital assets, and it may be required by the court, or if you are unable to refinance the home in your name only.
If you are expecting a profit on the sale, be sure to do the recommended updates provided by a trusty realtor. This will help to maximize the sale price and give you more money. Keep records of any costs with improvements and upgrades on the house and try to split them equally between you both.
We will talk about how to work with a realtor in a sale in our next blog post. Pay attention! There are things you can do to help the process so that you sell more quickly and get the most money out of the transaction.
2. One spouse buys the other spouse out: one person refinances the mortgage to carry it in their name only.
Leaving the house after a divorce might be an emotional decision for many reasons, and perhaps you are considering buying your spouse out so that you can remain in the home.
Before you commit to purchasing it from your soon-to-be-ex, please carefully consider these things. It might be very wise to speak with a financial advisor about how this will impact your future. Get as much information up front so you can make an educated decision.
Can you afford to purchase the property in your name only?
Can you afford the utilities and upkeep/repairs on your own? The taxes? The insurance? Condo dues?
You will have to give your spouse their share of equity in the house — how will this impact your overall financial plan as it will give you less money in your pocket.
What is your post-divorce financial plan? Is buying out your spouse best for you in the long run?
What are your reasons — financial, practical, and emotional — for wanting to buy out your spouse?
What are the tax consequences of buying the house?
Will you be free of the emotional baggage that often comes with divorce if you remain in the house?
If this seems to be the right decision for you, get some professional financial input on this so you understand the long term impact for you.
3. One spouse stays in the house for a pre-determined amount of time
Perhaps you both agree that one of you will remain in the house for a pre-determined amount of time, and then sell the house. This can be a good solution — but beware of the challenges and risks.
Who will be responsible for paying the mortgage/insurance/taxes? The repairs?
What is the market in your area now? Is it a ‘hot’ market? Can you get a strong price by selling now?
What happens if you remain in the house and the market changes downward? Will you lose equity (and therefore money)?
Will the house go under water, with the mortgage amount becoming greater than the market value…
How long do you want to hold on to the house?
Be sure to have your financial advisor and attorney review and advise on this arrangement.
There are other solutions with the marital home.
You can consider renting it out, with both partners finding other living situations. Again, research the financial side of this so you don’t have any surprises down the road.
Or consider “Nesting”. Nesting is when you and your spouse keep the house, and the kids stay there as their full time residence. You and your spouse take turns living there— kind of a reverse on the kids going from one house to another in that they remain in the house while you and your spouse find another place to live during your off-parenting time.
This may work for some families, but again, research how to do it and look at your alternative living arrangements.
Can you stay with a family member while you are ‘off duty’?
Can you and your spouse some with a workable plan, with the help of a trained professional, so that there are clear boundaries and expectations?
Is this a plan that can benefit you in the short term while you and your spouse are figuring out the details of your divorce?
Again, lots to consider. Here is a good article discussing Nesting in more detail https://www.psychologytoday.com/us/blog/contemplating-divorce/201902/are-you-getting-divorce-and-thinking-about-nesting
Remember that your home may be the biggest source of assets for both you and your spouse as you move forward to your next chapter. It is one more detail of your divorce to do some good research on to understand how each option will impact you. Don’t make a quick decision on this one— you want to have as much money as you can to set up your next chapter!