In many divorces, the biggest single assets are the retirement funds and the residential real estate. Sometimes, the only issue preventing an agreement is what to do about the house.
Some of the options for dealing with the marital residence are:
Award it 100% to one spouse;
Sell it and divide the sales proceeds;
Keep it as a joint asset after the divorce; or
Award it to one spouse but allow the other to reside in it for some specified period after the divorce.
Award 100% Of The Residential Real Estate To One Spouse
The most common means of dealing with the house is to award it to one spouse. There are a variety of reasons for this:
1. It can be the least disruptive for children.
2. It makes more sense to award the home to the lower-earning spouse if he or she is unable to purchase a home after divorce.
3. One of the spouses might have a strong sentimental attachment to the home.
4. The mortgage payment could be less than is now available to either spouse.
5. The mortgage payment might be less than the rent for an equivalent residence.
Residential Ownership And The Mortgage Are Separate
People sometimes assume that when a divorce decree awards the residential real estate to one spouse, the mortgage automatically changes so the one who wasn’t awarded the house is no longer responsible for the loan. This is erroneous. The mortgage company has two signatures on a loan. Simply because those two people divorce and one of them no longer owns a part of the house does not change the loan. It is analogous to a co-signer who is not a part owner but co-signs the loan. The only way to take a person’s name off of a mortgage is to pay off the loan, sell the property, or refinance it. Refinancing requires the spouse who will receive sole ownership of the house be able to qualify alone based solely on his or her income.
In some places, the parties often execute a Deed of Trust to Secure Assumption. This document provides that the former spouse who is not awarded the house has the right to foreclose and take over ownership if the other former spouse defaults in paying the mortgage. A Deed of Trust to Secure Assumption is used when both parties will remain liable for the mortgage after the divorce.
In most cases, awarding the home to one spouse in a divorce decree is not sufficient to convey ownership. Although a divorce decree can be sufficient, most do not usually contain all of the language used in a deed. Years after the divorce, the spouse who received the home could have problems with a title company when he or she tries to sell it. Usually, the spouse who will no longer own part of the house signs a Special Warranty Deed. A Special Warranty Deed’s primary purpose is to aid with the sale of the real estate by the spouse to whom it is awarded. It is recorded with the county’s real property records and shows a clear chain of title from the original seller to the spouses jointly, and then solely to one spouse after the divorce.
Sell The House And Divide The Proceeds
This is relatively simple. The parties simply agree, or the judge orders, the property will be sold and the proceeds divided according to a percentage. The details of who will have authority to choose the realtor, set the listing price, and accept an offer must be worked out in advance, as well as who will live in the house and how the mortgage will be paid while it is on the market. As with everything else in divorce, if the spouses cannot agree about this the judge will decide.
Keep The House As A Joint Asset After Divorce
It is not generally a good idea to be in business with your ex-spouse. With all of the emotions involved, and the need to move on with your life, try to avoid joint ownership of real property after divorce. Occasionally, it is the best option under particular circumstances.
Award The Home To One Spouse But Let The Other Live There
When the children will live with the parent who cannot permanently afford the house, it is sometimes good to award it to the one who can afford it. Then let the other live there until the children graduate high school. This might require the parent who will ultimately receive the house to pay more than the child support required by law. The paperwork required for this arrangement includes the two deeds described above, and then the parent who will remain in the house temporarily leases it from the other after the divorce.
Seek Legal Advice
A house is just one part of a divorce. It can be more complicated than most people realize. Few try to sell or buy a house without a realtor and a title company. If you are in a divorce or thinking about one, and you own a home, it is not a good idea to try to complete the legal process without the assistance of an attorney.
These are some of the highlights of dealing with residential real estate. There could be other options better suited to your particular circumstance.
Copyright McNamara Law Office, PLLC