The marital home is usually the largest asset in a divorce. Not only does it have the highest monetary value, it also holds the biggest emotional weight out of all the marital properties. It’s where you and your spouse planned to spend your lives together, and many important life moments took place there. Both you and your spouse likely have an emotional attachment to it, and it can be difficult to let go of that and assign a monetary value to it.
Three Ways to Deal With the Marital Home in a Divorce:
- Sell the home
- Negotiate a buyout
- Continue to co-own the home
Selling the Marital Home When You Divorce
If neither you nor your spouse want to keep the home- either because you can’t afford it, or you simply both want a fresh start- you can list it for sale. Once your home is sold, you can split the proceeds, either evenly or in another agreed-upon manner.
Before you can split the proceeds, though, you have several steps to go through. The first is hiring an agent. This may not be an easy task if you and your spouse are having trouble agreeing on things at the moment. If you can’t seem to settle on an agent, consider asking a neutral, third party that you both trust to find one for you. Trying to sell your home on your own is hard enough, but adding the stress of a divorce on top of it can feel incredibly burdensome, so it’s a really good idea to hire an agent to handle the sale.
Once you hire an agent, you will have to settle on a listing price, show the home, and review offers. This is another reason why working with an agent is recommended. Instead of you or your spouse trying to convince the other to list at a certain price or accept a particular offer, you can lean on the advice of the agent.
Finally, the proceeds from the sale need to be divided. While some spouses choose to split the proceeds evenly down the middle, this isn’t always the best course of action, particularly if one spouse has made a significantly higher contribution towards the home. A mediator can help you come to a fair resolution regarding the proceeds if you and your spouse are unable to do so on your own. Make sure to document everything in your marital separation agreement (MSA).
Negotiating a Buyout of the Marital Home
Another option is for one spouse to buy out the other spouse’s interest in the home. This is usually done if one spouse has a strong emotional attachment to the home, or if there are children involved and the custodial parent wishes to remain in the home for their sake.
While it may be a simpler transaction than selling the marital home, it doesn’t come without risks for both parties. The spouse selling their interest may lose out on any future appreciation of the home, while the spouse doing the buyout may feel like they are paying too much to get their ex off the loan. The pros and cons of this type of transaction should be weighed before making such a big decision. Some divorcing spouses even choose to do a gradual or delayed buyout, either by making payments over time or agreeing to do the transaction at a later date, for instance, when the youngest child graduates high school.
While a real estate agent isn’t necessary to perform a buyout, you may want to consult with one to determine the fair market value of the home. There are, however, a few other expenses that may cut into the bottom line of the selling or buying spouse, including:
● Broker’s fee – The spouse performing the buy-out may request that some of the potential future closing costs be withheld during the transaction, in case they ever decide to sell the home in the future.
● Home maintenance and other debts – The buying spouse may request that the buyout price be reduced to compensate for future home maintenance costs (i.e. a new roof, furnace), or if the selling spouse owes the buying spouse money for another debt.
● Spousal support – If the selling spouse has been ordered to pay the buying spouse alimony, they may be able to negotiate their way out of that by offering the buying spouse a lower price in exchange for them foregoing spousal support.
● Refinancing fees – Typically, the buying spouse needs to refinance the home in order to buy out the selling spouse. This transaction comes along with its own closing costs, which may or may not need to be paid at the time of the buyout. It’s best to consult with the escrow company handling the refinance and buyout of the marital home if you have any questions regarding this.
Continuing to Co-Own the Marital Home
As we mentioned above, some divorcing spouses choose to continue to co-own the home after the divorce, either for gradual or delayed buyout purposes or because neither party wants to give up their interest in the home. While there are some advantages to co-owning the home, particularly if you have children who wish to continue living in the marital home, there are also some disadvantages.
- You both continue to be responsible for paying the entire mortgage, which will affect your credit report.
- You have to decide how the mortgage payments, maintenance fees, and other home costs will be divided up after the divorce.
- You will need to remain in contact with your spouse regarding anything related to the home, which can make it difficult to fully move on from the relationship.
- You run the risk of your spouse changing their mind at a later date and wishing to sell the marital home, which could land you back in mediation or litigation in the future.
- You risk losing tax benefits by not transferring the home within a year of the divorce.
- You will need to both make wills immediately which specify what should happen to the home, should one of you pass away.
- If you are the spouse no longer living in the home, you put yourself at risk of losing out financially if your spouse files for bankruptcy in the future.
It can be challenging to figure out what to do with this very important marital asset. It’s best to weigh all of your options and consult with an attorney or certified divorce financial analyst first before deciding which direction to go in.