You and your spouse own a marital residence. What happens to the house in divorce. There are a few options.
In Part 1, I discussed placing the house on the market for sale to a third party. In this Blog, I will deal with the situation where you need to decide if you want to remain in marital residence.
Here are some advantages of staying in the house. You have lived in the house for a while. You have an attachment to the house and want to stay. I would suggest that your try to sublimate your emotional ties to the house. Your decision should be based on objective facts (see below). If you keep the house, you will not have to go through the effort, time, and decision making with your spouse of getting the house ready for sale, and all the other issues involved with selling the house as outlined in Part 1. You do not have to expend money, time, and energy moving out all your belongings. You save the time and energy of having to find a new place that is suitable for you, your kids, your pets and within the same school district as your kids so they are not uprooted from their current schools. Your kids will have stability and continuity by keeping the house, sleeping in their bedrooms, and staying in the neighborhood where they have friends and remaining in their schools. (Your kids may have to move schools if they attend public schools and both parents move outside the school district.) The kids’ routine will not be disrupted as much because when they are with you, they are in the house that they have lived. This takes a lot of pressure off the children during a time when they are already dealing with the breakup of their family. At least one things stays constant in their lives-their house, surroundings, neighborhood, and schools. Putting kids first, as you should always do, dictates that you should try your best for either you to stay in the house.
There are many issues to consider when deciding to keep the house. If you stay in the house, you will have to buy out your spouse for his or her share of the marital equity in the house. The marital equity is the current fair market value less the outstanding balance of the mortgage. In most cases you would owe your spouse one-half of the equity in the house. (Note that one-half of the equity to your spouse is not the law in Virginia; Virginia law does not divide martial assets equally, but rather “equitably”. Having said that, in most cases, Virginia courts will divide the marital equity equally. Note also that each party may have contributed separate funds towards the down payment or mortgage principal pay down to the house (e.g., premarital funds, money from inheritances; gifts from other parties) and he or she will most likely get credit for his or her separate contributions). Often times, you have to buy our your souses interest within a relatively short period of time (e.g., 90 days); however, you can negotiate to extend the time for the buy out.
So, under most circumstances, you would have to pay your spouse one-half the equity in the house. You can do this by refinancing the mortgage and taking out additional funds to pay off your spouse. You can also offset other assets, like investments or retirement, to buy out your spouses’ share of the equity. Also, you will have to refinance the mortgage to remove your spouses’ name from the mortgage. You will need to find out if you can qualify for a refinancing on your own and if you are able to increase your mortgage to obtain funds to pay off your spouse. If you cannot qualify to refinance on your own, you can try to find a co-signor to the new mortgage, like a parent or relative, to meet the mortgage companies refinancing qualifications.
Can you afford the house? Find out what the cost of the new monthly mortgage payments (mortgage, interest, taxes and insurance) will be. You may find you have a higher interest rate than the prior mortgage. You probably will see your mortgage payments increase if you have to cash out to obtain the funds to buy out your spouse. You should also consider the expenses for the house going forward. These costs need to be considered and put into a budget to see if you can afford to stay in the house What are the costs for maintenance and upkeep on the house? What is the condition of the house (e.g., what is the condition of the roof? What deferred maintenance exists and how much will repairs cost?) What are the costs for all the utilities? After you buy out the house, when you later go to sell the house, you alone will have to pay the costs of sale (e.g., realtor commissions, fix up costs, closing costs). You may have a capital gain on sale; how much will that cost. People tend to think that real estate always appreciates in value. This is not necessarily the case. The value of the house may increase or decrease. Predicting the future value of the house is problematic and speculative. Past performance is no guarantee of future results. Also, consider the tax deductions you may get from the house, such as the mortgage interest and real estate taxes. Owning the house can be a type of forced savings plan due to the principal payments on the mortgage. Bottom line sis can you afford the house? Will the expenses of the house force you to forgo other things you may want to spend on. Before deciding whether to keep the house, complete a comprehensive income and expense statement to see if you can afford the house.
Consider what you have to do to maintain the house. Do you want to be out in the cold raking leaves and shoveling snow? Keeping the house clean and working in yard. Or would moving into a condominium that takes care of the property and its surroundings give you more time for other things in your life. Explore all options. Don’t make a rash decision on such a critical issue.
Buying out the marital house from your spouse has great benefits for you and your kids. However, make sure you make the decision after having undertaken a complete and objective analysis of the costs and liabilities that you will be taking on. You should explore other housing options before deciding the buy out your spouse.
To reiterate, your kids mental and physical well-being is the most important thing to consider in your divorce; however, you must also consider the financial considerations because you don’t want to become house poor and be forced economically to have to immediately sell the house in a bad real estate market at a fire sale price. Make sure you can afford to buy out your spouse and maintain the house in the future.