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Divorce and the Home
When you have made the decision to separate and own a matrimonial home, there are three main options:
- Sell the home. This is the most common option.
- One spouse buys out the other’s interest. The spouse keeping the home will need to qualify for a mortgage on their own.
- Both spouses continue to own the home. The rarest option, wherein both spouses are financially tied together until the eventual sale of the home.
Sell the home
To maximize the financial return on a home sale, divorcing couples need to stay on the same page as it relates to the home sale. Hiring a real estate team that is experienced, with open lines of communication and sensitive to both of your needs, can really help to make the sale process successful.
It is important to note that one common area of contention revolves around the expenses related to preparing the home for sale. Who pays the expenses? Who does the work? Who is responsible for hiring contractors? What about the minor renovations, staging costs, storage costs, and moving expenses? An agent experienced with divorce will advise that these costs and responsibilities be incorporated into your separation agreement. In some cases, the costs may be incorporated into the real estate commission structure of the sale, and the payments are incorporated into the separation agreement and may be settled at closing, as agreed upon.
Selling the home may be the choice for you if you each want/need a clean start and new beginnings. Also, if neither of you financially qualifies to stay in the home on your own, a sale may be the only solution.
Keep the home
The decision to keep the marital home usually comes into play when there are minor children living in the home and your desire to keep the children in a familiar environment is a primary goal. It is very common for parents to keep the home so that the children’s lives are not disrupted.
If one of you decides to remain in the family home, you may need to buy out your former spouse’s interest in the home. In most cases, the “buying out” spouse will need to refinance the mortgage, and depending on what you negotiate in your agreement as your split of marital assets, the spouse keeping the home may need to provide your ex-spouse with a lump-sum payment. In some instances, one spouse can use other assets such as cash, retirement plans, or pension assets to buy out the other spouse’s interest.
If you will be keeping the marital home, your mortgage lender will require that you qualify for a home loan on your own and have capacity to pay your obligations based on your own income/assets. This may be a challenge if you have been out of the workforce for a significant amount of time. There are instances when you cannot afford to keep the home on your own, but another party (typically a parent) agrees to co-sign on the new loan with you. Just be aware what you are asking of your cosigner; to be responsible for paying your mortgage if you are unable to do so yourself.
Once you have qualified for a new mortgage, your former spouse will need to be removed from the home’s title and released from the mortgage. If you do not release your former spouse from the mortgage, the former spouse could continue to be responsible for the mortgage payments.
Options are only limited by your Imagination
Selling a home and keeping a home are certainly not the only options available for dealing with your marital home. Nonetheless, these are the most common disposition methods for treating your home during a divorce. In an age of rising divorces amongst seniors, the options for property settlement are becoming broader and unique. Proper real estate, legal, and financial advice will be paramount in navigating this process.
Divorce Mediation Services provides effective and efficient services that allow divorcing couples the opportunity to decide their financial and parenting plans. Divorce mediation is a fraction of the cost and time of traditional divorce settlement processes, while offering fair and equitable results.
The Importance of Beneficiary Designations
In a perfect world, everyone lives a healthy, long life and upon their last breath, their remaining assets are seamlessly delivered to the beneficiary(ies) of their choosing. In the real world, passing down assets is never this easy – unless proper beneficiary designations are in place.
There is a misconception amongst those who have wills that everything will pass via their will. The reality is that your written directives at carrier and institution level trump your will. In other words, if your will designates persons A, B, and C receive your assets, but your IRA beneficiaries on file show persons X, Y, and Z, then the recipient of the IRA assets will be X, Y, and Z.
It is of utmost importance to understand that your will is useful in distributing the assets you own that otherwise do not have written beneficiaries attached to them; think home, cars, jewelry, art, collectibles, and personal possessions. Any assets that come with a beneficiary designation such as IRAs, work place retirement plans, pensions, life insurance policies, etc, will be passed as per your beneficiary designations. Other assets such as bank accounts, brokerage accounts and the like may also have written beneficiaries on file, if you ask for Transfer on Death forms.
This is not to undermine the extreme importance of having a will, durable power of attorney, health care proxy, and guardianship/fiduciary set up for minors. Having a proper estate plan in place along with written beneficiaries on file for your monetary assets will ensure that your money and possessions will be received as per your wishes and desires.
Divorce Mediation Services of the Lehigh Valley offers divorce mediation services that allow couples to work through the topics of parenting plans and division of marital assets/liabilities in order to arrive at fair and equitable agreements. Divorce mediation is a viable, productive, and cost effective method for parties to resolve the end of marriage decisions. Divorce Mediation Services serves clients throughout the Lehigh Valley and surrounding areas.
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