One of the biggest financial decisions many divorcing couples must make is how to handle their house. The specifics of this issue can take many forms and they’re really important. Is there a mortgage on the house? How much is it worth? Is there any equity? Is the mortgage balance more than the value? How is the house titled? Can either person afford to live in the house on his or her own? How much maintenance does it require? What if nobody wants to keep the house? Those are just the immediate questions that came to mind as I was writing. There are many other considerations that come into play when making this decision.
So how do you make this decision? It depends on what decision-making process you’re using. If the court or divorce master is making the decision, it’s one of three possibilities: 1) Husband keeps the house and is responsible for all the expenses, including refinancing any mortgage or other loan into his own name within a certain period of time; 2) Wife keeps the house and is responsible for all the expenses, including refinancing any mortgage or other loan into her own name within a certain period of time; or 3) The house is sold and the sale proceeds are divided with Wife getting a certain amount and Husband getting a certain amount.
If you and your spouse are making this decision, through independent negotiation, mediation or the collaborative process, you can be as creative as you want and mold a solution that fits you and your family. You can take into account what’s important to both of you, what makes the most sense financially, what works best for your children and how it fits into your overall financial resolution. The possible ways to deal with your house are practically endless if you focus on reaching a mutually beneficial agreement instead of having one of three options imposed on you.
Sometimes it’s a really easy decision. Maybe one person wants the house, can afford to stay there and refinance and the other person has no desire to keep it. In my experience, those situations are the exception, not the rule. In most cases, there are really difficult decisions to be made. Even if you can’t afford the house separately and one person isn’t able to refinance, is it always better to sell? Are there other possibilities, such as one person living in the house for some period of time, agreeing how to handle the expenses and selling it down the road, with an agreement about how to handle the proceeds? What about renting the house to someone else for some period of time? Maybe getting a roommate or having a family member move in is a possibility.
If you’re going to sell the house, it’s best to work out as many of the specifics ahead of time as possible. What will the living arrangements be until it’s sold? How will the expenses be paid? Will one spouse be the primary contact for the listing realtor? How do you decide on an acceptable listing price and selling price?
I’ve asked a lot of questions and not given many answers. That’s because real estate is unique and it often raises a lot more questions than other types of property. If possible, work out these arrangements by mutual agreement instead of having the court make a decision. To do so, you will need to answer these questions for yourself. It may take some effective communication and coordination between spouses, their attorneys and the listing realtor to make this work, but the result is worth it.