Chapter 2- Selling your home in a Divorce
The starting point in successfully handling the disposition of the family home in divorce is to have a clear picture of where you stand financially.
Money matters matter the most when your life has been disrupted by the emotional turmoil of divorce.
By refraining from snap decisions, instead focusing on being objective, major money mistakes can be avoided.
As stated in the previous chapter, it is important to know who is financially responsible for the mortgage payments.
If you both signed the mortgage agreement, you are both obligated to the lender whether your name is on the property title or not.
Removing a party from a property title does not alleviate the financial burden of that party.
Two signatures on the mortgage means two responsible parties.
This also includes your homeowners insurance policy. You need to know who is named as beneficiary and if both parties are insured.
That is why it is smart on your part to have as much information regarding your home insurance, property taxes and liens, mortgage and marital debts, and marital assets available to your lawyer early on.
The more prepared you are to face your financial future, the more objective you can be.
Knowing where every dollar has to go will help you make better decisions and avoid uncertainty.
Knowing where you are financially greatly influences the decision to keep, sell, or buy out the family home.
The home is usually the most valuable asset couples share, not to mention the sentimental ties.
There are many considerations for each option, so make your decisions carefully.
Affordability and objective forethought are the keys to your decision.
Poor decisions can affect you and your ex-spouse years down the road, long after the divorce is finalized.
Keeping the House
When divorcing couples have school-age children, the decision to keep the home so the children can keep the same schools and circle of friends is a best, less-stress way to handle the situation.
Maintaining the normal routine as much as possible while working through a divorce can be accomplished with written agreements between you and your spouse.
By allocating home expenses and mortgage payments by percentages or delegation of financial responsibility, your family will be free to focus on what matters the most to you.
A clear-cut, signed agreement drawn up by a mediator will help avoid contention in the family home.
This is why it is important to know your financial picture and how much each spouse can contribute.
If your spouse fails to make their share of payments and cannot provide, it can affect both your credit ratings as well as complicating the later sale of the home.
If you feel you can trust that your ex-spouse has enough resources to set up this type of arrangement and is willing to
participate in the agreement, this may be the answer for you.
Some couples choose to reside in the home, but in different rooms.
If, later, one leaves, that person will have more financial obligations than the other, so be sure to give serious thought before choosing this option.
Be aware, though, that some spouses are tied to the home, not only because of their children but emotionally.
The house represents stability and shelter from the trauma of divorce, and by keeping it, they can have more control of their situation.
Some may think keeping the home means they have "won" even though it is not a feasible financial decision.
It is difficult enough to deal with divorce without later learning that unforeseen or unbudgeted expenses have taken their toll.
Being realistic about what is affordable is crucial.
Selling the House
For most couples, selling the house is the best solution in a divorce setting.
Selling a home, under any circumstances, is not without time and effort, so adding the emotional effects of divorce can make it a particularly trying time.
There are legal reasons to sell as well as financial and emotional considerations.
The decision to sell can include any and all of these, but liability may have the greatest weight in the decision to sell.
Legal reasons to sell involve the division of real property. Marital property belongs to both parties no matter whose name is on the title.
Each party is entitled to their equitable share.
Some couples have a legal agreement beforehand, providing a simple solution to property division.
Some couples want to make sure they receive their fair share and turn to the courts to handle it.
Some use mediation to talk about the division of assets.
Again, your attorney handles any agreements regarding the division of property.
If you sell your home, the division becomes much easier because the future value of the home does not apply.
Financial concerns created by divorce may be a significant reason to sell your home.
A mortgage drawn up and signed based on two incomes is now in a precarious state.
Monies budgeted for the upkeep of the home, property taxes, home insurance, home security, and house payments may or may not be there when couples split.
Couples who sell their homes before divorce have the advantage of the capital gains tax exclusion of $500,000.
A divorced person selling a home gets half of that tax break.
There are other tax benefits available as well when substantial equity growth has occurred over years of owning a home.
These are best discussed with your lawyer so you can make a financially sound decision about when to sell your home when you are divorcing.
The Emotional Side of Selling Your Home
When the marital home has been the hub of happiness and family life, it may turn out to be a constant reminder of what it once was and is no longer.
The memories of good times in the home can be tainted by the unhappiness and pain of divorce.
No matter how strong sentimental value may be, sometimes the best option is to sell the house and move on.
Dealing with the past on a day-to-day basis simply because you want to keep the house may not be worth the trouble.
As time goes on, you may decide that hanging on to the house wasn't as important as you first thought.
The liability of keeping a home may be the best reason to sell it. There are various ways to keep a house with one spouse remaining and the other departing, but they all carry risks and challenges.
If one spouse has enough income to remain in the home, it may be easier to buy out the other's share of the property, which would entail refinancing the home.
The real challenges come when working out the money details.
What if there is a disagreement on the selling price to the spouse or the appraisal value of the house?
What if the equitable division of the property is not what was expected?
Is it possible to give up marital property rights in exchange for
other assets like investments?
Will the ex-spouse lose out on future appreciation of the house?
It is crucial to know that questions like these will arise when it comes to the division of property in a buyout situation.
Refinancing the home in one spouse's name means not only settling the previous loan but paying the selling spouse their portion of the buyout.
As an example, if the principal balance owed is $600,000 and there's another $600,000 in equity, one-half of the equity ($300,000) would be due the selling spouse and $600,000 would be needed to pay off the principal.
The refinanced loan would have to be at least $900,000.
If the house value has appreciated, who is entitled to the equity?
What if the property is appraised lower than the current loan?
All scenarios must be considered before deciding on a buyout. Again, knowing your financial standing before filing for a divorce is paramount.
Maintaining a clear channel of communication with your ex-spouse is a major part of co-ownership.
Divorcing and keeping the home takes mutual trust. The goal is to move forward, so any concessions or efforts to do so will benefit both parties for the duration of the divorce process.
If you or your spouse want to keep the house and buy out the other, but this cannot be accomplished, co-ownership is a possible path to take.
It is a way to maintain stability for your children, who will not have to face the challenges of moving.
One of the spouses can occupy the home with the children
and make the mortgage payments until they can manage a buyout and become the sole owner.
The drawback to this type of arrangement is what can happen if the mortgage payments are not made.
Both parties are still responsible, and missed payments will affect both credit scores.
Moving forward with a new life can be tricky in a co-ownership agreement because consistent communication is necessary to keep things going for the children.
House payments, insurance premiums, utilities, and necessary repairs are financial obligations that ensure a secure place for the children.
What if the utilities will be shut off due to nonpayment?
What if the home heating and air-conditioning system needs replacing within a day or two?
What if you moved two hours away and your ex-wife needs you to help with a fallen tree because she can't afford to pay someone?
What if your ex-husband decides to move out because he has stretched his money too thin?
What if bankruptcy is filed and there is a risk of losing the house?
Co-ownership must be considered carefully, and a knowledgeable attorney dedicated to protecting your family's well-being will be your best source for guidance on the complexities that may arise.
An agreement can be created to address all the obligations mentioned previously and protect both parties in the meantime.
No matter what option is chosen, mortgage payments still must be paid.
Selling is the only alternative if neither of the spouses can afford the home on one income.
Walking away from your home and mortgage does not go over well with the courts.
It will complicate your divorce with the legal actions taken by the lender to get the remaining balance paid.
One of the ways to end up with the judiciary in your divorce proceedings is to have an uncooperative spouse or attitude, costing more time and more money.
Many divorcing couples end up spending what equity they had in their marital property on lawyer and court fees.
Refusing to sign papers to sell the home or refusing to help pay for the mortgage can lead to judges ordering the home sold.
As mentioned earlier, when a divorce action is filed, there is an automatic temporary restraining order that can be issued to prevent spouses from selling or borrowing against marital property.
Discuss this option with your lawyer to make sure you have some sort of protection for your stake in the marital property.
Less than a third of divorces end up in court due to disagreements over property division, but going to trial doubles the cost of the divorce.
If an average divorce costs $11,000 settled out of court, and an average divorce trial costs $22,500, you can see how the equity in a home can easily be eaten up by attorney fees.
Many divorcing couples who seriously consider the cost of lawyers and the time it takes to settle choose to sell their home instead of keeping it.
Surveys show that couples who resolved their property issues without court intervention completed the divorce in under a year.
Those who could not agree and went to trial had to wait an average of 15 to 16 months.
Some provinces require divorces to be resolved within a year, but in most provinces, there are long wait times for divorce trials.
While the trial is pending, mortgages still have to be paid as well as utilities, insurance, and property taxes.
Delays can certainly lead to more stress, which divorcing couples do not need.
To avoid increased legal fees and court costs, it seems like a commonsense decision to sell the home.
In the upcoming pages, you will learn the benefits of marital agreements that help sell the home, the importance of having realistic expectations regarding the value of your home, and how choosing a good Realtor experienced in divorce may be your greatest help in the sale of your home
Chapter 3 to come in next few days..