Your home may be your biggest asset, so make sure you understand your options.
Chances are your home is one of your most valuable assets. Having at least a basic understanding of what can happen with your home in a divorce is important so that you can make an informed decision about the options available to you.
Title isn’t necessarily everything.
The concept of marital property versus separate property can be difficult for some to grasp. On a fairly regular basis clients will say “The house is titled in my name, I worked and my spouse didn’t…so since I paid for it, the house is really mine.” Not necessarily.
Property acquired during the marriage is considered marital. Marital property is the property that is divided between the spouses (as opposed to separate property, which is the property of just one spouse). If you are earning money during the marriage and putting that money into a home, bank account, retirement account, or just about anything else – typically that money would still be considered marital. This is so even if you are putting it into a bank account titled in your name only, or a home (regardless of how it is titled).
Dividing the home.
Generally speaking, there are really only a couple of options when it comes to dealing with a home as part of a divorce. Those options tend to be: A) sell it and divide the proceeds in some fashion (often 50/50, but not necessarily); B) have one party buy out the other parties’ interest in the home; or in rare circumstances C) do nothing.
Whether a case is decided by a judge, or agreement between the parties, selling the home is common. In many situations there would be deadlines established – for example: a deadline saying that the parties will agree to list the home within thirty days. In many cases provisions are made for details such as choosing a realtor; deciding on a listing price; deciding the amount of repairs to be performed prior to sale; etc. Working with an experienced attorney ahead of time to nail down these type of details is almost always a good idea because it prevents disagreements down the road that could stall the process and be potentially very costly.
In other cases one party may want to remain in the home. In these cases, that party would buy out the other party’s interest. This can be done multiple ways – for example by having the spouse who is staying in the home refinancing the mortgage, or having that spouse waive his or her interest in other marital assets. When contemplating a buy out, it is important to consider several factors, such as:
How will the buy out price be calculated?
How long will the spouse who is doing the buy out have to complete the transaction?
If a refinance is going to be involved, how long with the spouse who is doing it have to finalize the new loan?
If there is a mortgage in both spouses’ names, are there sufficient provisions in place to remove the non-buying-out spouse from liability on the mortgage?
While rare, there have been cases where essentially nothing is done with the house. This usually makes sense when the home is “underwater” (i.e. the amount owed on the mortgage is greater than what the house could be sold for). When a home is jointly owned by a married couple, the couple owns it as ‘tenants by the entirety.’ If no provision is made in the divorce for the division of the home, then the parties would continue to own the home as “joint tenants” after the divorce is final.
The basic idea behind the ‘do nothing’ approach is to essentially “kick the can down the road” until a time when it is more financially feasible to sell or divide the property.
As noted above, there is a distinction between marital and separate property. Often times a home can have both marital and separate components. This is called hybrid property. For example, sometimes one spouse may have owned property before the marriage, then sold this property and used that money as a downpayment on the marital home. In situations the process of determining the marital and separate components of the home is called tracing. It essentially involves documenting all of the various monetary contributions to the home and classifying them as marital or separate. Once this happens, it becomes possible to look at the equity in the home and come up with proposals on how to divide that equity between the parties.
Regardless of what issues you may be potentially dealing with, the most important thing you can do is understand that the sale and division of a home is a complicated transaction. In order to best protect your interest and avoid unnecessary liability down the road, you should consult with an attorney.