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For most couples, their home is their most valuable asset. If you are divorcing, you are probably struggling with what to do with the house and wondering if it would be possible for one spouse to retain it. I have spent years helping individuals understand the finances of their divorce and the complex decisions that need to be addressed. When one spouse wants to keep the home, it will need to be part of the larger divorce negotiations. If you are considering retaining the marital home, there are several financial considerations that we can help you assess including:

  1. Do you, as a couple, have sufficient other assets for one of you to keep the home and buy out the other spouse?
  2. Will the spouse keeping the house be able to refinance the mortgage in just his or her name?
  3. Will he or she be able to afford the home on their own going forward?

Before I explore these options, I want to caution you to protect yourself during this process. Proceed only with the guidance of your divorce attorney and, ideally, a mortgage professional who has a good understanding of divorce lending guidelines which can be quite complicated. Giving up rights, agreeing to refinance without knowing if you will be approved, or taking ownership of the house too soon could cause significant and severe complications if your divorce negotiations become contentious.

Question 1:  Do you have the assets to buy your spouse out of the home?    

Typically, when one spouse wants to keep the house the other will be compensated with other assets for their share of the equity in the home. Other assets can include another property, cash, a retirement fund such as a 401k, or an investment account. We can discuss options available to you based on your financial picture and then discuss the best plans with your divorce attorney.

Question 2:  Will you be able to refinance?

If one spouse wants to keep the family home, refinancing is almost always necessary in order to remove the other spouse from the mortgage obligation on a house they will no longer own. Depending on the particulars of your situation, refinancing can help pull equity out of the house to pay off the spouse not keeping the house and to remove his or her name from the mortgage.

However, a refinance can often be a complex process.  A spouse refinancing a mortgage in just their name needs to have sufficient qualified income from a job, alimony, child support, or, as is often the case, a combination of all of these income sources with several confounding factors including:

  1. To count as qualified income, alimony and child support must have already been received consistently for the last 6 months and must continue for at least another 36 months after applying for the mortgage or after signing the note, depending on the type of mortgage.
  2. Your other debts (student loans, car loans, and credit card debt) may create a problem with your debt-to-income ratio.
  3. Current real estate market conditions and interest rates could impact a lender’s decision.
  4. If your credit score is low, you might not qualify for the lowest interest rates or you might be required to make a larger down-payment or you may need a co-signer. If it’s too low, you may not qualify at all.

Question 3:  Will you be able to afford the home on your own?

You need to make sure you are going to be able to maintain the property. What happens if the furnace or roof needs to be repaired or replaced? How will you pay for that?

In order to answer these questions, you should have an honest discussion with yourself and/or your financial advisor about your budget after your divorce and include an honest look at the income, assets, and debts you will have on hand. You not only have to be prepared to independently handle the regular house expenses (mortgage payment, utilities, taxes) but have money available for upkeep and unexpected maintenance.

Making a Difficult Situation Easier

At Next Act Properties, we have real estate solutions that can help you at any point before, during, or after your divorce. We have extensive experience and a network of mortgage experts throughout the country who have specialized training and experience with refinancing in the context of divorce and will help you determine the best course of action for your particular situation.

Reach out to us here at Next Act Properties to see how we can help you with your refinancing or other real estate needs.

When couples get divorced, they must determine the full extent of their marital property, both assets and liabilities, for division between the spouses. For most divorcing couples, the largest asset they have is their family home. Many emotions are attached to the home, but there are also many practical concerns that must be considered when deciding how to divide ownership in the property in a way that best benefits the family.

Option 1: Maintain Joint Ownership After the Divorce

This is almost never recommended. If a couple is splitting, there are likely very good reasons, and joint ownership of a large asset is likely to perpetuate or even increase friction between them. However, there are times when this might be a good short-term option as the couple continues to determine the best next step.

Option 2: Sell the House

At first glance, selling the marital home seems like the easiest option. A complete appraisal of the property and improvements made over the years will determine the market value of the home. You’ll need a real estate agent who specializes in divorce-settlement home sales, as this sort of sale is significantly different from selling a home for a single individual or a married couple. You’ll want to find someone whom both of you can trust and will defer to.

Ask yourself: Do you need a quick sale or should you wait for top dollar? Which of you will handle the details? Who will pay for necessary upgrades to make the home more sale-able? Who will handle price negotiation? Your Divorce Settlement Agreement should detail most of this.

The answers to these questions can complicate the sale of a house for a divorcing couple since there are bound to be disagreements. In addition, leaving the family home can cause great distress and upheaval for children, and may include the need to change schools and lose touch with friends, adding additional trauma to the already distressing situation of their parents’ divorce.

Option 3: Let One Spouse Keep the House

Keeping the house can be a comforting choice for a spouse emotionally attached to the home. And if children are still in the home, this is often the least traumatic option for them. Since mothers usually take custody of the children, wives are often more likely to want to keep the home. But this requires the spouse receiving the house to buy out the other spouse’s share of the equity.

As with a sale of the home, an appraisal is necessary to determine fair market value. The spouse keeping the house would be responsible for paying half of the equity to the other spouse (equity = house value minus existing mortgages and liens). This is where things get complicated.

First of all, the spouse keeping the house will probably need to refinance the existing mortgage(s) since the other spouse will almost always want to have their name removed from the mortgage(s) on a house they will no longer own.

And how will the spouse who is keeping the home pay such a large sum to the other spouse? If there aren’t sufficient other assets, the spouse keeping the home can try to refinance with a cash-out mortgage, providing additional funds to pay off the ex. But in many cases, especially when the wife is keeping the home, she might not have sufficient income (alimony and child support payments can be used to show income if certain requirements are met) or sufficient credit history to be able to refinance or get the needed loan.

The cost of buying out the spouse is only one consideration in keeping the house. One must also factor in real estate taxes and expenses for upkeep: utilities, regular upkeep, and major home repairs must all be budgeted into the cost of keeping the home.

What is a person to do? We offer a unique option.

Option 4: Sale-Leaseback

This option combines the benefits of options 2 and 3 with the least amount of stress and anxiety, satisfying both spouses. Next Act Properties will buy the marital home from the divorcing couple and lease the home back to the spouse who is staying. This option provides a very quick, satisfying resolution of a prickly and emotionally charged situation.

Whatever option you determine you need, or if you’d like to talk to someone about which option might be best for you, please contact us at Next Act Properties today to help you resolve this aspect of your divorce.