Co-Owning a House With Your Ex After Divorce

Asset and Debt Division in a Divorce

When you divorce, all assets and debts acquired during the marriage are divided. This includes the home. If purchased during the marriage, it is a marital asset and must be accounted for in the divorce.

Usually, a home has a mortgage, which is considered a marital debt, which means the debt must also be addressed.

Both spouses receive roughly half of the total value of the assets and debts (this can vary based on state laws and if the couple has a prenuptial agreement).

How Homes Are Commonly Divided in Divorce

When a home is a marital asset in your divorce, the two most common ways to handle it are:

1. The couple sells the house, pays off the mortgage, and divides the profit in their property division.
2. One spouse gets the house as an asset as part of the property division but also takes on the mortgage as a debt.

Neither of these solutions is simple. In the first instance, the couple must list the home and agree to accept an offer (and agreeing on anything in a divorce can be a challenge).

If one spouse owns the home after the divorce, that spouse will need to refinance the mortgage into their own name so that they have sole responsibility for that debt moving forward.

And if they have bad credit or insufficient income, that may be impossible.

Important legal notes:

• Transferring the deed to the home to one spouse gives them complete ownership, but both names remain on the mortgage, with both spouses still liable to the bank.
• The court cannot order the bank to take one spouse’s name off the mortgage. The court has no legal jurisdiction over the bank.
• The bank does not automatically require you to sell your home after a divorce. One or both spouses can continue to own it. The mortgage must continue to be paid or must be refinanced.

Co-Owning a House After Divorce

A third option is to continue to co-own the home after divorce. There are many scenarios in which this might make sense.

The Children Need to Live There

If you have minor children and want to maintain stability for them, that might mean having them live in the home and continue going to the same school.

The plan is usually that once the kids go off to college, the home will be sold, and the proceeds will be split between the parents at that time.

In this situation, the residential parent might make all the mortgage payments, or the couple might agree to split the mortgage payments between them.

This arrangement provides stability for kids and one parent and means there is no need to refinance the mortgage into one spouse’s name.

You Are Under Water on the Mortgage

If you and your spouse owe more on your home than it is currently valued at, you will take a loss if you sell it. In that situation, it may make sense to continue jointly owning the home until it is profitable to sell. One spouse could live in the home, or the home could be rented.

In that scenario, you don’t lose money (or owe money to a bank) on a sale. One spouse doesn’t have to move, or you can generate rental income to help pay the mortgage.

The Real Estate Market Is Bad

If real estate prices have taken a hit in your area, this might be a bad time to sell. Selling when the market is down could mean you get tens of thousands less for the home. When you both hope to come out of a divorce with financial stability, this could hurt both of you.

One Spouse Wants the Home But Can’t Afford It

If one spouse would like to own the home moving forward, but there are not enough assets in the divorce to compensate the other spouse and/or the spouse who wants the home does not have enough separate assets for a buyout.

It might make sense to co-own the home until that spouse has enough money to buy out the other. In the meantime, that spouse could make all the mortgage payments, reducing the debt on the home.

You’ll avoid having to find a buyer for the home, but will continue to both be liable for the mortgage on the house.

One Spouse Wants the Home But Doesn’t Qualify for a New Mortgage

If one spouse would like to own the home after the divorce, this usually means that they must refinance the mortgage into their own name. Only in very rare circumstances will a bank agree to take the other spouse’s name off the mortgage.

Suppose a spouse wants the home but has bad credit or insufficient income to qualify for a new mortgage. In that case, the couple might agree that they will remain jointly responsible for the mortgage, but the spouse living in the home will make the payments and be responsible for all repairs and maintenance.

They will refinance in the future once their circumstances change.

They might agree that this must happen within a specific time frame, or the home must be sold.

You Agree to Keep the Home as a Joint Investment

If your home is in an area that is growing in value or is a vacation area, keeping it and renting it out together might make sense and prove profitable. You and your spouse must work together to manage repairs and rentals and agree to divide any mortgage payments.

You will also have to agree on what happens if one spouse wants out and if you will ever sell the home.

Drawbacks of Co-Owning a Home After Divorce

While continuing to co-own the home might make sense for the reasons above, there are some critical drawbacks to be aware of:

• Both spouses remain liable for the mortgage. Both names remain on the mortgage, and if it isn’t paid, the bank will come after both people, even if the spouses agree that one spouse will make the payments.
• It can be hard to qualify for other loans. The mortgage shows up as a debt for both spouses and is considered when they apply for other mortgages or loans. This can make it hard to buy another home.
• It creates ongoing entanglement. Instead of obtaining complete financial separation through a divorce, the spouses remain financially involved with each other, which can be emotionally challenging.
• The divorce agreement can be more complex. If the spouses choose to co-own a home, their divorce agreement must contain the legal framework for how they will do so, who will pay what, and when and how they will sell the home.

When Co-Owning a Home Is a Bad Idea

While there may be some financial sense in continuing to co-own your home together after divorce, there are some situations in which it is simply not recommended:

• Domestic violence or a power imbalance is part of the relationship
• The house is in danger of being seized by the bank for nonpayment
• The home is not in habitable condition
• The spouses cannot agree on anything without extensive legal involvement

How to Make Co-Owning a Home Work

If you and your spouse decide that co-owning your home after marriage is the best choice for you, here are some tips to make things go smoothly:

• Put your entire plan and agreement in writing in your divorce decree so it is enforceable.
• Improve your communication skills so that you can talk and work out problems if they arise.
• Set reasonable expectations and ground rules. For example, if one spouse will remain in the home, the other spouse should only be allowed in if invited, even though they are co-owners. If one spouse will make monthly payments on the mortgage and the other spouse will contribute a dollar amount, have a monthly due date for that contribution.
• Understand your alternatives. If co-ownership does not work out, clearly understand what you must do legally to disentangle yourself.
• Change your mindset. If you agree to co-own and rent the home, try to see yourselves as business partners.

Final Thoughts

Co-owning a house after divorce can be challenging, but it is the best option in some situations. Understanding the choices and how the ownership plan will be structured will help you to go in with all the facts.