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Property Rights in Divorce: Options for the Marital Home

When I started practicing family law two decades ago, everyone had equity in their homes. Most of my divorcing clients had so much equity that buying their spouse out of their community share usually wasn't an option because they did not have enough other assets or liquid funds to purchase their ex's interest.

Times have changed – at least momentarily. Now, spouses, lawyers or the courts must think of creative alternatives for deciding how to assign value and entitlement to the family home. If you're getting a divorce, you're likely concerned about who, if anyone, will continue to live in the home you shared with your ex. And how is its value split fairly? 

In this article, we explore all of your options if you or your spouse owns property and you're getting divorced.

Options for property owners in divorce

Let's look at the different options you and your spouse can choose from when dealing with your property. Keep in mind that if you and your ex cannot reach some sort of agreement about what to do with it, the court is likely to order you to sell it and split the profits.

Option 1: Sell the house and split the proceeds

This sounds easy, right? But there are many decisions that must be made. Think about the following questions if you decide to sell your home:

  • Who will the realtor be?
  • What improvements, if any, will be made before the sale?
  • What will the listing price be?
  • At what point will you lower the listing price?
  • What if one spouse doesn't accept a viable offer?
  • Will either spouse live in the house pending sale? If so, will they be charged with maintaining the property?
  • Will either spouse be entitled to reimbursement for payment of property-related costs or for the fair market value of the property?

Option 2: Purchase your spouse's interest in the property

Many clients still choose this option. Issues you may want to consider include, but are not limited to, the following:

  • What is the fair market value?
  • What would a realtor cost if the house were sold?
  • Does the payee spouse need liquid funds, or would a transfer of a retirement account suffice?
  • What will happen to the personal property in the house?
  • Who will claim tax credits associated with the house for the year the property is sold?

Option 3: Wait to sell once all the children reach 18

While not a preferred method of disposition by the court, a judge may approve deferring the sale if the stipulated terms are specific enough. Many people consider this option so that the children have less stress in transitioning to two households. Then, kids at least keep the stability of remaining in their own homes. When negotiating these agreements, we prefer a "self-executing judgment." In other words, we try to cover many of the unknowns:

  • What will happen if there's no equity in 10 years?
  • Who will pay for repairs? Taxes?
  • Will one spouse have the opportunity to buy the other spouse out of their share prior to placing the home on the market?

    A deferred sale may also be a good idea if the property currently has limited equity but is expected to increase in value.

Option 4: Assume the mortgage, or refinance the loan in the name of one spouse

Many times, when there's no equity, the partners decide to give one spouse the house. (Usually, one spouse wants to keep it and the other wants to be rid of the obligation.) Sometimes, refinancing can take a long time. Or, assuming the loan may not be an option. What then? Even though there's no equity, many clients offer their ex a financial incentive in consideration for remaining on the title and on the mortgage until they can refinance in their own name. This can be a complicated option, but it seems to be occurring more often.

Option 5: Short sale

If there's no equity – you don't expect to make a profit off the home – the best option is usually a short sale (as opposed to foreclosure). However, unless you both want to get the house off of your shoulders, this is probably not a result you'd want. Therefore, it may be a good idea to negotiate a settlement. It won't be perfect, but it will limit the damage.

If you have a real property dispute or other divorce-related questions, schedule an intro call with Hello Divorce today.