What Happens To The House After We Get Divorced?
Houses tend to be the biggest assets, and biggest liabilities, many couples accrue during their marriage. It is not surprising, then, that figuring out what to do with the house can be one of the biggest challenges in a divorce. The parties do have options available to them. Understanding the options available can help you make the best decision for you and your family.
Most divorcing couples use one of three options. Husband buys the house from the Wife; Wife buys the house from the Husband, or the house is sold to a third party buyer. These options are simple in theory, but there can be unexpected complications. The parties should consider the possible risks of each option before they decide how to proceed.
The first question is what is the house is worth? The gross value is often obtained by a formal appraisal, a tax assessment or a realtor’s opinion. The value is reduced by any debts against the house (mortgages, home equity loans, etc.). If either party is going to keep the house, the value is also reduced by a cost of sale adjustment. In Johnson County, Kansas, an adjustment of between six and eight percent is usually applied. The reason for this adjustment is to reflect the fact that the house would not bring proceeds equal to its value if it were sold to a third party. Sellers pay realtor fees and closing costs, which typically average between six and eight percent. In order to be fair to the parties, the same reduction is applied if the “buyer” is one of the spouses. Even if the spouse is not incurring these costs in this transaction, they will incur them in the future when the house is sold.
If the house is sold to a third party, any debts owed should be paid off as part of the sale. The question is how to divide any proceeds. Even if only one spouse is listed on the deed and mortgage, the proceeds may be subject to division as a marital asset. The parties can use the proceeds to pay off other debts, like credit cards, or they can divide the proceeds.
If one spouse is keeping the house they may need to refinance joint debts into their own, separate name. The house who is “selling” their share of the house will want to be removed from any obligation so they can obtain alternate housing. They also do not want to end up owing for the house if the other spouse fails to make payments.
If the parties agree to sell the house, they need to plan for how they will take care of it until it sells. Who will live in the house? Who will pay the mortgage and utilities? Who will provide the upkeep? What if the house does not sell as quickly as originally assumed? It is important to have a strategy for dealing with these issues in advance. If it becomes necessary to reduce the asking price, each party will need to approve the reduction.
Even though these are the most common options, they are not the only ones. The parties may agree to keep the house until the youngest child graduates high school, then sell it and divide the proceeds. Again, issues regarding payment of a mortgage, credit for those payments, utilities, taxes, repairs, need to be addressed up front.
Finally, some parents choose to keep the minor child in the house with the parents taking turns residing there. This is often called “nesting” because the child stays in the same, familiar place (the “nest”). Each parent stays at the house during his or her parenting time and stays somewhere else when it is the other side’s time. Obviously, this requires a high level of cooperation and coordination. Not only do you have all of the same financial issues regarding payment of the bills, but you also have to take into account the cleaning and maintenance of a shared residence.
If you are going through a divorce, there are options for what you do with your house. If you have questions, you should sit down with a family law attorney to discuss the pros and cons of each option to help you decide what will work best for you and your family.