Who gets the marital home in divorce?
Divorce often results in signifiant changes to your personal relationships and to your finances. And at least one party has to find another place to live. In some cases, one of the parties can keep the marital home. Would you feel more comfortable keeping the house? Can you keep it? Do you really want it?
The marital home is considered “property” in divorce and is typically included as an asset to be divided as part of the process. The parties have options on what to do with the house, so let’s explore them so you can determine the best option for you.
One option is to sell it. The parties can agree to sell the house and negotiate how do divide its equity. If neither party wants to stay in the home and/or it isn’t cost-effective for one party to buy out the other’s interest in it, then the home will usually placed on the market for sale. Absent agreement on exactly how to divide the proceeds, the money is usually held in a trust account pending resolution of the divorce.
Selling the house is the default option. If the parties can’t agree on what to do with it, the court usually orders that it be sold and the proceeds distributed as part of property division.
Another option is a buy-out. All assets owned by either party are considered for property division in divorce. The parties can negotiate division of assets. Absent an agreement, the parties can either use mediation to help them resolve the issue, or the court decides.
The parties have the option of negotiating to have one party keep the full value of certain assets while agreeing to give up more of others. For example, if the martial home has $100,000 in equity and the parties have $100k sitting in a savings account, one party can keep the marital home and give the other party the full amount of savings as an off-set.
Offsets can also be done between equity in a home and retirement accounts. However, one should be careful to ensure that the retirement accounts are tax-affected to determine their approximate cash value. Retirement money is taxed when withdrawn whereas the transfer of equity in a marital home in divorce is tax free. Be sure to compare apples with apples.
One of the parties can also refinance the house to obtain the money necessary to buy out the other spouse’s interest. Refinancing is typically necessary because the person keeping the home usually has to get the other party off of the mortgage as part of the divorce.
If there’s a buyout, who actually keeps the home?
There are a number of factors the court considers in determining how to divide property. However, the two most important factors in determining whether one of the parties will keep the home and if so, which one, are: 1) who has the children most of the time, and 2) who can afford to keep the home?
If one of the parents has the children the majority of the time, that person has a better chance of keeping the home. The top priority in a divorce involving children is to minimize disruption for them. Keeping them in the same home is an easy way to ease the divorce transition for them. Therefore, the parent who has the children the majority of the time has a good reason to keep the home.
However, no matter who has the children for how long, the party who wants to keep the home has to be able to afford it. Which brings us to the other significant factor: finances. Which party can afford it? And even if one of the parties can afford it, is it a wise move financially?
Especially if there aren’t substantial assets to be used in an offset, the person keeping the home may have to refinance it to obtain the money necessary to buyout the other party. Refinancing typically results in bigger mortgage payments. And when a person is already making a financial adjustment after divorce, taking on a bigger mortgage payment can be difficult.
It’s important to carefully weigh the benefits of keeping the house versus the cost.
Also, although it may be very difficult, try to keep your emotions out of the decision. In many cases, the parties feel connected to the home: they raised the kids there, they’re comfortable in the neighborhood.Don’t let your emotions put you in a difficult financial arrangement.
The same principle applies to trying to keep the kids in the home. Often, it’s ideal if the kids don’t have to move. However, putting yourself in a tight spot financially just to keep the kids in the home can cause significant stress and financial hardship, which may end up indirectly harming your children more than if you had just moved in the first place.
There’s often significant equity and attachment connected to the marital home. Deciding what to do with it is an important and sometimes difficult decision. However, when keeping the home is going to create financial hardship, it may be best to sell it and move on.
If you have any questions about what to do with the marital home or any other divorce questions, feel free to contact us.
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