Navigating the Home Ownership Dilemma During Divorce: Exploring Your Options

Divorce is never easy, and when it comes to the family home, emotions can run high. As a family law attorney, I've seen countless couples struggle with this very issue. Both spouses often have a strong emotional attachment to the home, especially if they've raised children there or invested significant time and money into making it their own. So, what are your options when you both want to keep the house? Let's explore a few possibilities.

Option 1: One spouse buys out the other

One common solution is for one spouse to “buy out” the other's share of the home. This involves determining the home's fair market value (there are many ways to determine FMV), subtracting any outstanding mortgage balance, and then calculating each spouse's share of the remaining equity. Typically the spouse who wants to keep the house needs to refinance the mortgage in their own name and pay the other spouse their share of the equity.

For example, let's say your home is worth $500,000, and you have a remaining mortgage balance of $200,000. That leaves $300,000 in equity. If you're dividing assets equally, each spouse would be entitled to $150,000. The spouse keeping the house would need to refinance the mortgage for $350,000 ($200,000 to pay off the existing mortgage and $150,000 to pay the other spouse their share of the equity). This option assumes no Sp component, Co ownership with a 3rd party, (ie a parent or adult child) or other complicating factors.

This option can work well if one spouse has the financial means to buy out the other and can qualify for a mortgage on their own. However, it's important to consider the long-term financial implications. Can you afford the increase in mortgage payments, property taxes, insurance, and maintenance costs on a single income? additionally interest rates are high which affects principal and interest. There are other ways to buy a spouse out. This is just one example to consider.

Option 2: Sell the house and split the proceeds

Another option is to sell the house and divide the proceeds. This can be a good choice if neither spouse can afford to keep the house on their own, or if there's significant equity in the property that could be used to fund each spouse's fresh start.

In this scenario, clients typically list the house for sale, pay off any outstanding mortgage balance and closing costs, and then split the remaining proceeds according to their divorce settlement agreement. This can provide each spouse with a nest egg to put towards a new home or other financial goals. Of course, consult your financial professional to determine potential capital gains.

However, selling the house can be emotionally challenging, especially if you have children who are attached to their childhood home. It can also be logistically complicated, particularly if one or both of you— and the children continue to reside in the house together during the divorce process. You'll need to agree on a listing price, how to prepare the house for sale, how much to spend, and what to do if the house doesn't sell quickly.

Option 3: Continue co-owning the house

In some cases, divorcing couples choose to continue co-owning the family home, at least temporarily. This can work if one spouse wants to stay in the house with the children to minimize disruption to their lives, and the other spouse is willing to delay receiving their share of the equity. This can also be a good option if the spouses are willing to be good business partners, even if not married.

For instance, you might agree that one spouse will continue living in the house with the kids until they finish high school, while the other spouse rents or buys a smaller property elsewhere. You could continue to co-own the house and be responsible for the mortgage, taxes, and maintenance costs according to your agreement.

This option requires a high level of trust and communication between the divorcing spouses. Having a clear, written agreement outlining who will be responsible for which expenses, how any repairs or renovations are handled, and how the equity is divided when the house is sold are critical components to this type of agreement. It can also be tricky to qualify for a new mortgage while still co-owning the family home, so the spouse who moves out may need to rent for a period of time. However our firm works with many sophisticated underwriters who know how to take this into consideration without negatively affecting the parties.

The importance of professional advice

Regardless of which option you choose, it's crucial to consult with a family law attorney and a financial planner or accountant before making any decisions. A family law attorney can help you understand your legal rights and obligations, draft a comprehensive divorce settlement agreement, and ensure that any co-ownership or buyout arrangements are properly documented.

A financial planner or accountant can help you crunch the numbers and evaluate the long-term financial implications of each option. They can also advise you on how to disentangle your other financial affairs, such as joint bank accounts, investments, and retirement plans.

Real-life example

I once worked with a couple who had been married for 15 years and had two children together. They had bought their dream home just five years earlier, pouring their hearts (and a good chunk of their savings) into renovating it. When they decided to divorce, both parties were adamant about keeping the house.

After exploring their options, we ultimately decided that the wife would buy out the husband’s share of the equity and refinance the mortgage in her own name. She had recently received a significant promotion at work, so she was confident she could afford the mortgage payments on her own. The husband, meanwhile, had always dreamed of moving to the countryside, so he was happy to take his share of the equity and put it towards a down payment on a rural property.

It wasn't an easy decision, and there were certainly some emotional moments throughout the process. But by working with a skilled legal and financial team, the parties were able to find a solution that worked for their unique circumstances.

The bottom line

Deciding what to do with the family home during a divorce is never easy. There are financial, legal, and emotional factors to consider, and what works for one couple may not work for another. By exploring your options with an open mind and seeking professional advice, you can find a solution that allows both you and your ex-spouse to move forward with clarity and confidence.

Remember, your home is just one piece of the larger puzzle that is your post-divorce life. By focusing on your long-term goals and well-being, you can make decisions that set you up for success and happiness in this new chapter.

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