When it comes to dividing property in a divorce, the family home is often a couple’s largest asset. Deciding what you are going to do with the house is typically the starting point of marital property settlement negotiations. Most couples choose from three common ways to deal with a family home: put the family home on the market, one spouse buys out the other’s interest, or you and your spouse agree to own the house together. Exploring the options in more detail may help you decide what course is right for your unique circumstances.
If you decide that you want to sell the house and divide the proceeds, it may provide the money that you need to start over. So that you have an idea of what you will have to work with following the sale, keep in mind that the final amount can be reduced by brokerage fees, capital gains taxes, second mortgages, etc. To avoid disagreements, you and your spouse may want to agree on an agent to handle the sale and be prepared to take their advice on the asking price and offers to keep the process from derailing. If both you and your spouse have vacated the home, all the easier for an agent to stage the home for sale. If one of you continues to reside in the home, the house will have to be prepped for showing, which may warrant some extra compensation for the efforts of the remaining spouse. If one spouse continues to make mortgage payments on the home while the sale is pending, some adjustment to the final property settlement will likely result.
Another option you may consider is negotiating a buyout with your spouse. Often times, the custodial parent may wish to buy out the non-custodial parent in the interest of continuity and stability of the children. There are many issues to consider when electing to keep the family home such as the volatility or the housing market and maintenance costs. If you are the seller, you may lose out on future appreciation, while the buying spouse may be the victim of depreciation. If major home maintenance projects have been deferred, it is important for the buyer to consider what the possible costs will be in order to arrive at a fair settlement. After weighing the pros and cons and settling on a price, the buying spouse will either have to qualify for an individual loan for the house, pay cash or trade other marital property to buy out the other spouse.
If there is a weak real estate market that makes selling the home disadvantageous at the time of your divorce or if you do not have the resources to purchase the home from your spouse, you and your spouse may consider continuing to own the home together. In fact, it is not uncommon for couples to co-own the family home following divorce, especially when there are children involved. If you and your spouse can agree to wait to sell the house for a specified period of time so that the kids reach a certain milestone or for the market to improve, this may be an option. It may be that an arrangement can be forged for one spouse to make payments to the other as part of a buyout installment plan if an interested spouse is unable to come up with the lump sum.
There are clearly advantages to co-ownership, however the disadvantages can be significant so proceed carefully. Firstly, if you do elect to co-own the marital home, both you and your spouse will continue to have the full amount of the mortgage on your credit reports making it difficult to secure further credit. If one spouse makes late payments, both of you will suffer a negative credit rating. If that does not deter you, realize that the process demands strict accounting to determine (A) how the mortgage payments will be handled between the two of you, (B) how maintenance and other expenses will be reimbursed and (C) who will take the mortgage interest payment deduction at tax time. Equally important is to be aware of tax exemption rules regarding transfer of property between spouses following divorce. Typically, you and your spouse will have within one year from the date of your divorce to transfer property without incurring a tax. If you enter into a co-ownership arrangement, this time can be extended for a period of time – typically 6 years from the end of marriage. If co-owning the home is the most feasible option for you, it is key to iron out the details as part of a written agreement or order so that you will not suffer unintended consequences.
If you are considering divorce and need more information regarding marital property division, contact the family law offices of Ronald L. Bell PC. For over three decades, Ron has successfully represented divorcing clients across the state of Illinois on matters such as marital property division, child support and custody, spousal support and more. Contact us today for help.