Can You Keep Your House Post-Divorce?

In many divorces, the house is frequently sold during or shortly after the divorce. This is generally because one, or in some cases, two streams of income were sufficient to maintain the carrying costs on one household, but would be insufficient to maintain the carrying costs on two households. In other occasions, a spouse cannot afford to keep the house for a number of other reasons and so the house is sold.

But this is not always the case.

Sometimes there are sufficient assets, such that one party can buy out the other. The house would be formally appraised to establish its value. The appraisal is conducted by a licensed appraiser who provides a comprehensive appraisal of fair market value, almost always using a comparative approach to valuation.

Once that value is established, the spouse retaining the home would buy out the other’s interest in the home by providing a lump sum payment in an amount equal to some proportion of the equity in the house (i.e., appraised value less encumbrances). This is frequently done in cash, with the other spouse retaining a disproportionate share of a cash or cash equivalent account. On other occasions, the spouse retaining the home refinances a mortgage, as part of a transfer of title and to come up with the cash as part of the refinancing process. In a small number of cases, a different kind of asset is divided disproportionately, but parties must take care to apply the appropriate discounts in case there are embedded taxes in the other asset or some other circumstances which merit a discount.

However, in the appropriate case, the parties both continue to own the home post-divorce. This generally occurs when one party cannot afford to keep the home on his or her own, but the parties agree that there are other considerations which make continued joint ownership of the home desirable. For example, they could want to keep the home for a year or two until a child graduates from high school, and then sell the home.

In these cases, it is critical not only to establish what the sale process and the disposition of the net proceeds would look like if/when the home is eventually sold, but also the terms of continued joint ownership. Who is going to be responsible for the mortgage? For the taxes? Who gets to claim the taxes on their income tax return? Is there a credit for appreciation due to paying down the principal? What happens if someone fails to make a mortgage payment? What happens if repairs to the home are needed?

These and other considerations need to be clearly established and delineated in any agreement. Otherwise, there could be substantial repercussions to one or both parties. Keeping a house post-divorce is doable, but needs to be done correctly and thoroughly to avoid any potential issues.

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