One of the biggest decisions to be made during the divorce process is what will happen to the family home. The decision is more than just a legal one - it impacts both emotions and finances.
Although there are many factors to consider, generally there are two options for the home - either one spouse will keep it or it will be sold.
Considerations for One Spouse to Keep the House:
How do you decide who keeps the house? Deciding who will remain in the family home is a big decision. If spouses can't agree who will remain in the home after the divorce, the court will consider the following; which spouse can afford the mortgage and all expenses associated with the home, financial circumstances of each spouse, which spouse has custody of the children, and whether the house is a premarital asset of one of the spouses.
How do you determine the amount of equity to be paid? The first determination is the value of the house. Whether you use Zillow, a comparative market analysis from a real estate agent or order an appraisal, both of you must agree on the value of the property. Once that is determined, you can deduct any outstanding mortgage loans to determine the equity.
How does the non-possessory spouse get paid equity? Regardless of which spouse keeps the family home, generally both spouses are entitled to an equitable distribution of the equity in the home. If both spouses are on the mortgage, the spouse keeping the home will need to refinance the mortgage into his or her individual name, to remove the other spouse from that liability. Make sure the spouse keeping the home meets with a mortgage broker to assess whether he or she will qualify for the refinance.
What if the paying spouse doesn't qualify for a refinance? Is it financially feasible for one spouse to be entirely responsible for the house payment, upkeep, and related bills when their income is most likely decreasing? If the paying spouse doesn't have the income and credit to qualify for a refinance or loan assumption in their name, they will need family member who is willing to co-sign the mortgage with them.
Can we hold on to the house for a couple of years and then decide? It depends. In the eyes of the court, the goal is the sever all entangling legal relationships and place parties in a position to begin anew. If litigated, a court ordered sale is the normal end result. If you are mediating, you could craft a flexible agreement but they are risky. You have to have a clear and detailed plan as to timing of buyout, who lives in the house prior to the buy out, who pays what bills until the buyout and provisions in place in case the buyout option is not feasible.
Should the paying spouse execute a Quick Claim Deed until they can refinance? No. This is a common misconception. Quick Claim Deeds take one party off the title of the house, but not off the mortgage. The deed conveys legal ownership and is separate and distinct from any mortgage attached to the property. So the spouse would be off the title, but still financially obligated to the mortgage lender and subject to negative personal credit effects if the other obligor fails to make timely payments.
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