I have discussed the various options of what to do about the house in a divorce-whether you should sell the house or one party will keep the house. There is another option: continue to co-own the house for some period of time.
Co-owning a house after separation or divorce is pretty uncommon. It is probably not done as much because of all the problems that can occur with co-owning real estate with your spouse.
There are good reasons why people continue to co-own the house after separation. Sometimes the party who has primary physical custody of the children does not have the funds or credit to buy the non-custodial parent out of the house. This means that the children will be forced to move out of their home and suffer as a result. They may even have to move into a new school district and start at a new school. They will miss their neighborhood friends and families.
Another reason that people continue to co-own the house is that the real estate market is slow and your house’s value is depressed. This is not a good time to sell your house. The market may be so bad that your house has negative equity and you would have to come to the closing table with a check. Under these circumstances, it might make sense to hang on to the house until the real estate market improves and you can get more equity out of your house or not have to pay the mortgage company at closing.
While the reasons stated above are good ones, there are many problems with continuing to own a house (or any property) with your ex. You are getting divorced. This may mean that you and your spouse have trouble communicating and agreeing on issues big and small. Co-owning real estate means that you are forced to discuss issues on a big matter-the house-on a regular basis. The great aspect of a settlement agreement that divides property and debts is that you don’t have to deal with your ex about these financial issues. They have been decided. You have a clean break.
Owning a house together means you and your spouse are inextricably financially tied together. You and your spouse will remain on the mortgage together. What if your spouse fails to pay his or her share of the mortgage and you cannot pay his or her share, then your credit score will get hit. What if your spouse files for bankruptcy? What if your spouse can’t pay his or her share of the real estate taxes? He or she does not pay the homeowners’ insurance and a huge tree falls on the house? Or someone slips and falls in your driveway and now you are sued. What if you move out and want to buy your own home? Your credit shows you are obligated on a mortgage already, so you probably cannot qualify for another mortgage and therefore you cannot buy a house. Remember you are legally responsible for the house even if you do not reside there. What if the residing spouse damages the house? What type of access will the non-residing spouse have to enter the house to inspect it? What happens if the residing spouse remarries and the ex has free access to the house? What happens if one spouse is sued and the judgment creditor seeks to force a sale of the house? What happens if one spouse dies?
There are myriad different issues that you and your spouse will have to discuss and try reach accord. Remember if the two of you divorced, it probably means that had problems communicating and agreeing on matters. Now you will be forced to talk and agree on many issues over what could be a long period of time.
How are you going to share costs of the house: mortgage, taxes, insurance, repairs and maintenance, upkeep? Should you simply equally share those costs. But is it fair to equally share the costs when only one of you gets to live in the house and the other has to pay for his or her own housing by him or herself? What if a spouse falls under financial stress like losing a job or becoming disabled and can no longer pay his or her share towards the house? What if you decide to sell the house when the house market improves? It could be years before the market comes back. What if you decide to sell the house when your youngest child graduates from school? It seems like a great idea to keep the kids in their house and it is best for the children. But then when it comes time to sell the house, you and your spouse will have myriad of issues to discuss and agree on: who will you use as a realtor? how will the listing price be determined?, how will the listing price decrease over time on the market? how will you market the house? will the party who resides in the house keep the house in showable, immaculate condition during the sale or will he or she want to continue to live in the house and therefore purposely make the house look bad for potential buyers? What about tax implications with mortgage and real estate tax deductions and tax issues relating to timing of the transfer of the house?
In sum, there are benefits to co-owning the house: keeping stability and continuity for the kids and not selling the house is a bad housing market. However, before entering into a co-ownership, you must get a good divorce lawyer, estate lawyer, and certified public accountant to draft a written binding agreement that contains provisions that account for all these issues and all other contingencies that may occur over the period of co-ownership.