Divorce and How it Affects Your Home
Most people when they divorce will sell their home or condo and split the profit. The easiest thing to do is split it all down the middle and go your separate ways. Of course, a Lawyer will be the best advisor on this, not a Realtor. Your Lawyer will help you through the whole process and make sure that your best interests are taken care of. A Realtor can help you determine what you may sell your current home or condo for and what you can afford to spend on your new place.
Before you place your home or condo on the market, however, consider these relevant points:
* Will my spouse or I be able to find comparable or sufficient housing at a lower monthly cost? Remember, mortgage payments are increasing your equity in your home, and rent does not. You may be better off paying a higher monthly mortgage than a slightly lower rent. However, when insurance and taxes are figured in, renting might be cheaper.
* Are we selling at a loss because of the divorce? If we hold onto the house a year or two longer, might we do much better? In the current market, prices are high so it's a great time to make a profit on the sale of your home.
* Does the house require significant work? Will a renovation make it more marketable, and if so, do we have the funds to pay for the work? If not, you may decide to hold onto the house for now--even if you rent it to someone else--and sell down the road.
* Will a move be so disruptive to the children that holding onto the home becomes an option, even in the face of financial sacrifice?
* Do you plan to buy a replacement house? If so, make sure that you buy the new house soon enough to "roll over" the gain from the sale of the house to your new home.
* Will the spouse who's moving out be willing to keep his or her name on the mortgage? Unless you refinance the house, both of your names will probably have to remain on the mortgage if one of you retains use of the house. If the spouse who is moving out is not willing to keep his or her name on the mortgage, and you cannot refinance, you may have to sell.
Important things to remember when selling a Matrimonial Home:
(your main residence is the matrimonial home)
1) Who is on title? If you both are then you both must agree who to sell the house with, what price to list it at and when your preferred closing date would be. If you are not able to speak about this you can have your Lawyers speak for you to the Realtor. But, if at all possible it's easiest to choose an agent and sit down together to decide on these issues.
2) Even if you both are not on title, the spouse that is not must agree to the terms of the sale (price, etc) and (s)he must also sign the listing agreement.
3) When the offer comes in both the owner on title and the non-owning spouse must agree that the offer is satisfactory and sign the final agreement of purchase and sale. (there is a special spot for the spouse not on title to sign to agree that (s)he is aware and agrees with the terms set out in the agreement of purchase and sale. You have to subtract the mortgage from the value of the house, of course, to figure out what your home is worth. When you have that number, what then? You need to make some decisions.
If you've decided to hold on to the home, meanwhile, how does that work? Say that you've decided to hold on to the house until your youngest child turns 19 and has been out for a year. How, then, will you share in the profit? Because you and your spouse are working this out (rather than letting a judge decide for you), you can make whatever arrangements you both agree to, but here are some ideas:
* The spouse who pays the mortgage from the time of the divorce until the house is sold should probably get a credit from the net sale proceeds (gross proceeds less outstanding mortgage, broker's fees, and so on) to the extent the principal of the mortgage was reduced while he/she lived there and paid the mortgage. In the best of all possible worlds, that spouse would also get credit for any improvements made to the house during his or her solo tenure there. The rest of the net proceeds would then be split 50-50. By the same token, the cost of improvements to the home over a minimal amount (say $300) could be shared. But watch out for disputes over whether the repair is needed.
* Consider agreeing that if the remaining spouse remarries, or has a significant other move into the house, the sale provisions which were going to go into effect when the youngest child turned 19 (or 21, whatever you have agreed) apply after the move or remarriage. For some, having a stranger move into "his" or "her" house is too much to bear.
* If your spouse is paying the mortgage with support from you, it might be fairer to simply agree to divide the net proceeds with no credit for mortgage payments.
Even if the sale of the home seems far in the future, you might also take the time, now, to devise a "first option," which means that the spouse who stays in the house has the first right to match a bona fide offer on the house and "buy out" the other spouse. If that spouse passes on the right to buy, the spouse who didn't stay in the house then has the same right to buy out the other. (You can also reverse who gets the first option.)
What if I must sell my house to make ends meet?
If your living situation and financial status have changed for the worse because of your divorce, you might consider liquidating some assets or selling the house that was awarded to you to help with your cash flow. Before you make this decision, speak with your Lawyer.
Many factors should be considered if you are thinking about selling your home. Your house or condo is an asset as well as a home. If you have children, their emotional needs have to be considered. If you receive the home through a divorce settlement or judge's decree while your spouse gets the liquid assets, think carefully about whether you have enough cash to live comfortably or whether you should move into less expensive living quarters. If the monthly payments on the home are small, you might as well stay where you are.
Whenever divorce is in the cards, you must consider your living expenses to see what you can afford on your income with or without support from your ex-spouse. Look at your current expenses and really think on it – can you afford to pay for your current home by yourself?
We hope this is a bit of helpful information for you in this difficult time. Please feel free to contact us should you have any questions or when you are ready to take the next step.