Where Goes the House in a Divorce?

 

The home that the family lived in during the marriage is often the most valuable asset that a couple owns. Therefore, this asset may receive much attention during the divorce proceedings. What happens to a house after divorce depends on state laws, circumstances involving the house and the parties’ actions.

 

Factors to Consider

The date that the home was purchased is a pivotal consideration in what happens to the house. If the home was owned by one of the spouses before the marriage, it may be considered separate property that is not subject to division. The original owner may retain the entire house and its associated value. This is often true even if the parties made no specific agreement related to the property.

If the property was purchased during the marriage, it is usually considered a marital asset unless there is a specific agreement to the contrary. In equitable distribution states, this means that the property must be split equitably between the spouses. In community property states, this usually means that each spouse should retain half of the value of the property.

Even if one spouse previously exclusively owned the property before the marriage, the asset could be subject to at least partial division if it was commingled with the marital estate. For example, if income was generated from the home and that income was used to support both spouses, the property could become part of the marital estate. Additionally, if the other spouse contributed to increasing the value of the home by making renovations for instance, that spouse may be entitled to compensation for the increase in the market value of the home.

Options

The spouses may be able to reach a mutual decision about how to handle the house without having to incur the additional expense of having a family court judge make this determination. Some of the options that spouses may consider include:

Selling the House

The parties may agree, or a judge may order, that the house be sold. This option makes sense when neither spouse will be able to afford the house when they now have two separate households to tend to. The parties may agree to split the proceeds of the sale equally. An alternative is to split the sale proceeds by the proportionate share that each spouse contributed. For example, if one spouse put 70 percent of the mortgage payments in and the other spouse contributed toward 30 percent of the payments, the parties may agree to a 70/30 split.

Buy Out the Property

If one spouse wants to keep the home but the other does not, the first spouse may buy out the other spouse. This means that the first spouse will pay the other spouse to walk away from any ownership interest associated with the house. A legal agreement to this effect will usually require the second spouse to be removed from the deed, mortgage or other legal connection to the property. This may ultimately result in the first spouse having to get the mortgage refinanced or the lender to agree to remove the second spouse’s name from any debt obligation.

If the first spouse does not have enough liquid cash to buy out the second spouse, he or she may agree to give up other assets of the marital estate that equal the second spouse’s ownership interest in the home. The same result may occur if the spouses battle the issue in court.

Deferred Sale

If the couple has children, they may agree that the spouse who retains primary custody of the children will continue to live in the marital home until the children reach a certain age. Then, the house will be sold and the proceeds will be split between the spouses. The downside of this agreement is that the spouse who does not live in the house may find it difficult to be approved for another mortgage with his or her name attached to an existing home and mortgage.

Exclusive Occupancy Rights

While the divorce is pending, the family court may provide one spouse with the exclusive occupancy rights of the home. Even if the other spouse also owns the property, he or she will have to find somewhere else to live while the case is pending.