As a divorce attorney, this is a question I get hit with regularly. Lots of concerned voices. Actually–while the divorce is anything but simple–the house and requisite who/what/when/where does not have to be complicated. That said, pitfalls do exist when divvying up the domicile.
Generally speaking, outside of a 401K, a couple’s home is their largest asset. Therefore, care must be taken with what might feel in the moment like minutiae. Put another way, it is absolutely okay—preferable even—if your divorce attorney is a bit nitpicky or skeptical. That’s what you are paying for, and it could save you enormously.
So. Someone has filed and divorce is underway. What, regarding the living arrangements and allocation of the family home, should take place? What are the choices?
- Sell the property, divide the proceeds in a certain percentage;
- One spouse keeps the house and buys the other out of the value/equity;
- Same as number two, only switch spouses.
Seemingly straightforward, there are nuances to these options; clients can get broadsided by failing to address the specifics—so clear attention must be paid to the fine print.
Choice One: The Sell
Let’s imagine a couple B decides to sell the house and split the proceeds. Easy. Not necessarily. Who lives in the house until it sells? Who pays the mortgage and continuing bills? Who picks the realtor? Decides list price, keeps the house sparkling for potential buyers? Who pays for necessary repairs? And finally, what if the house doesn’t sell?
A dizzying array of scenarios can transpire within the selling of a home, particularly in the current market. If details are not plainly set forth in the decree, the spouse NOT living in the home might get an ex too comfy on the couch and his or her own timetable; there’s not a whole lot the spouse existing elsewhere can do but become impatient and resentful.
Written stipulations must address as many variables as possible, which means the couple (and lawyers) must initially brainstorm the right questions. Then set out the answers clearly, for example, “If the house doesn’t sell in X months, the court will appoint someone to sell the property and divide the proceeds evenly among the parties.” That might persuade the spouse still living in the home to get motivated to sell.
Choice Two/Three: The Buyout
Say the house is of major sentimental value to one or both of the parties in couple A, who decide not to sell. Our kids live in the house and would prefer not to, in addition to acquiring divorced parents, shoulder the move to a new house and/or school on top of their forever altered family landscape. But be forewarned: possessions are not apples to apples.
The value must be calculated, established, and agreed upon for all items, big and small, which may not correspond wholly to the financial value before reasonable allocation of assets can occur. With a family home, emotions often are entrenched. Dismantling a family’s history can be messy, daunting, and painful. Given the circumstances, selling the house might be the best-case scenario, but even for divorcing couples, relinquishing the house where plans, children, and hopes were born is complicated.
This may be why, in my anecdotal experience, both spouses more often than not want to keep the house, regardless of who ultimately owns and lives there. Divorce is a unique condition. At times, a key decision does not square financially, but makes sense to the heart of the family—keeping the house is often one of those choices—which is fine, provided caution is employed to answer the ‘what ifs’, in writing, which ensures each party receives assets of equitable value—or what they agree to be equitable—and in a timely manner.
What else can be done in dealing with the house to safeguard against either party feeling bamboozled? Agree, in writing, to a home appraisal at the outset. A realtor can also provide a market value by looking at relevant comps in your neighborhood with a simple search, which many realtors are happy to do for free when they are likely to land your business.
Beginning the process with a realistic number—whether the house is sold or one spouse continues to live there—provides certainty, a baseline from which to create a plan with the rest of the assets that both parties can optimally live with. It is also paramount to consider all of a couple's resources in settlement negotiations, to recognize that keeping the house might be important enough to one spouse that he or she is willing to give the other a much higher percentage of the 401K or some other community property asset.
If a couple has good home equity and decides, for example, the husband will remain in the home, it might make good sense to consider a cash-out refinance, which an agreed-upon part of can go straight to the wife. Then the husband is also free to put the home in his name.
There are as many potential settlements as there are divorces, decrees, and ex-spouses. At the end of the day, all that needs to occur for a settlement is a mutual agreement. With large ticket items like a family home, couples can, with the help of their lawyers and a lot of paper, create inventive settlements that serve the best interest of both parties (and their children, when applicable).