One of the first decisions to make when divorcing is what to do with the marital home. The marital home is not like any other asset, as there’s often an emotional component to it that makes the decision difficult. Whether the divorce is amicable or not will also affect what happens. If you’re considering a divorce and own a home with your spouse, here are your options.
Option 1: Agree to sell the home
Both parties must agree to sell the home and agree on a price. If they can’t agree on a single broker, they can each get one and let them split the commission. This option is most attractive when the house can be sold at a profit.
Advantages: The couple can walk away free and clear from the house and the spouse with cash in hand. Disadvantages: Depending on the house and the market, you may have to sell at a loss. You’ll also face the stress, time, and expense of moving and putting a home on the market.
Option 2: Agree that one person will keep the home
This is also known as negotiating a buyout. If there are kids involved, it’s common for the custodial parent to remain in the house and negotiate a buyout with the non-custodial parent. Once the house is appraised, the spouse remaining in the house can buy the other out with an “equalization payment” in the amount of half the equity in the house. Whoever remains in the house, it’s crucial that they refinance the mortgage in their name only.
One couple found this out the hard way when the ex-husband, who moved out, was ineligible for a new mortage. Despite having signed over the deed to his ex-wife, and having stated in the divorce decree that he was no longer financially liable for the house, the bank didn’t agree.
Advantages: Again, both spouses walk away free and clear from each other. If there are children, they can have some security and stability during the divorce. Disadvantages: The spouse remaining in the home may not be able to swing it financially. If that’s the case, consider a gradual buyout over time, or consider trading other marital assets towards the value of the other spouse’s share of the equity.
Option 3: Agree to keep the house and rent it out
This option works best for couples who are still on good terms and able to work with each other. It’s an attractive alternative to selling a house at a loss, as renters can cover the mortgage instead.
Advantages: The divorcing couple can hang on to the house until it’s the right time to sell. Disadvantages: Being a landlord is challenging, and the couple must consider what happens if tenants don’t pay. Also, the couple will continue to be tied to each other financially, which is not an appealing prospect for many couples getting divorced.
Option 4: Disagree and let the courts decide for you
For couples who simply cannot agree on what to do – one wants to sell but the other doesn’t; both insist that they stay in the house – taking the matter to court is the only option. Keep in mind that legal fees can wipe out any profit you might make from your house should you sell it.
Advantages: You will finally have a resolution to your problem. Disadvantages: It may not be a resolution you like, but you’ll be bound to carry out the court’s wishes anyway.
Read more about divorce on Avvo.com
