The equity in a couple’s home is oftentimes one of the largest marital assets, making it one of the most significant aspects of a divorce settlement. When deciding how to divide real estate between spouses, the question generally comes down to whether the house will be sold and the proceeds divided equally, or whether one person will buy the other out so that s/he can continue living there.
Many factors can weigh into determining the best scenario. For example, is the real estate market currently favorable for sellers? If it is a seller’s market, will the two parties be able to find suitable housing for themselves once they sell their family home? If there are children involved, will selling the house affect their school placement?
Let’s take a look at several important factors to think about for both possible scenarios.
What to Consider if Keeping the Family Home
If one spouse intends to purchase the other spouse’s interest and continue to live in the home, it will be important to determine the fair market value (FMV) of the home. I recommend that my clients hire a certified real estate appraiser to conduct an appraisal and render an opinion as to the value of the home. Once the FMV of the home is determined, you will need to determine the balance due on any outstanding mortgages, or home equity loans, secured by the property. The difference between the FMV of the home and the balance due on the mortgage(s) is the equity in the home subject to division between the spouses. Thus, if you are keeping the home, you will likely need to pay your spouse a portion of that equity, or vice versa.
If it is determined that one spouse is keeping the marital home, that spouse will have to determine if s/he can afford to continue to pay for the mortgage, or if refinancing is necessary. You will need to find out if you are eligible for a loan of an equivalent amount. Consult with a CPA, a mortgage lender, and/or a financial planner to be certain that it makes financial sense to go this route. It may be difficult to afford a mortgage with only one income and a potentially increased loan amount.
It is also important to determine if both names are on the current mortgage and/or deed. If that is the case, it will likely be necessary to remove the former spouse from the deed and mortgage. Otherwise, it’s quite possible that the person who will be moving will have difficulty in getting approved for a new mortgage if they chose to purchase their own home.
What to Consider if Selling the Family Home
Sometimes after careful analysis, a couple will realize that it makes more sense to sell the house and simply split the proceeds. This may be the preferred course for a number of reasons: they may both realize they want a fresh start without having to live in an environment that may bring painful memories, or they may simply not be able to afford to keep the home.
If a couple decides to sell the marital home, they will need to find a Realtor with whom they are both comfortable. When looking for a Realtor, it is important to choose one who is impartial and ensures that everyone feels “heard.” The Realtor should lay out the expectations of the process in the first meeting. Timelines must be considered, such as when each party plans to move out, when the house will be listed, and when preparations for the sale will begin.
Michelle Smith and her team at Keller Williams in Worcester, MA (https://www.facebook.com/michelle2sell) have experience working with couples who are divorcing. Michelle recommends that the following questions be asked at the very beginning of the process so that everyone can get on the same page:
• How will sale-related expenses such as Title V certification, staging, photography, or repairs be handled?
• What is the balance of the mortgage and how will it be divided between the two parties?
• Are there any third parties on the mortgage or deed?
• Does the house need to be sold in order for each person to be able to purchase or rent a new home?
• Can one party afford to buy out the other on the current home?
• Will both parties remain in the same community? Is there joint custody of any children?
• If children are involved, are current school placements important to continue?
• How does each party want to receive communications? Do they want to get information through their attorneys, or should everyone be copied on each email or text?
There are many factors – financial, emotional, and logistical – that bear on a decision as important as what to do with a family home during a divorce. In addition to a divorce lawyer, a couple should also meet with a neutral Realtor, a financial planner, a mortgage lender, and/or a CPA in the process of determining whether to sell or refinance. Take time to analyze the situation from different perspectives in order to understand the big picture before making a knee-jerk decision based on emotion or perceived convenience. Feel free to contact our office to assist you in this decision-making process.