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Many divorcees have strong emotional connections to their homes and are concerned with maintaining ownership of their properties after divorce.
A family home might hold special bonds with the neighborhood, memories connected with raising children, or provide financial stability. But keeping the house in a divorce is complicated and involves understanding local divorce laws.
If you’re struggling to figure out how to keep your house during a divorce, don’t worry. This article will walk you through essential steps, share helpful information, and give practical tips to keep your family home after divorce.
Let’s dig in.
Steps to Keep the House After Divorce
Retaining ownership of the house during a divorce can pose difficulties. However, you can accomplish it with careful planning, preparation, and a thoughtful financial and legal approach.
Here are several vital steps to ensure sole ownership of the family residence.
Research Your State’s Property Division Laws
Begin researching the situation with real estate ownership after divorce by identifying particular property division laws in your state. It would help to look into domestic relations or family sections in your state code.
You can also study any court decisions in individual cases (called case law) concerning real estate distribution between spouses in a divorce.
You might live in a community or equitable distribution property state, which means you live where all the assets and debts you obtained during the marriage belong equally to both spouses. Community property states are California, Arizona, Texas, Washington, Idaho, New Mexico, Louisiana, Nevada, and Wisconsin. So, in a divorce, you will split property 50/50.
However, real estate purchased with a combination of marital and personal funds only in part belongs to both spouses. Thus, the courts will split in half the house’s value acquired jointly.
Equitable property distribution states do not usually divide the spouses’ assets and debts down the middle. Instead, each partner receives a fair share of the property, even if it’s not 50/50. For instance, the court might order the divorcing couple to sell the house and divide the money fairly between the parties.
Determine the Legal Ownership of the House
Determining which spouse has the right to the house in a divorce is vital to choosing the necessary steps if you want to continue living there. Consider the following factors to understand who has the right to own your family residence:
- The name on the title or deed
Is your name listed on your house’s title or deed? This information can give initial evidence of ownership. For instance, it can be one spouse’s separate property. Dividing a real estate item you bought before marriage depends on the situation. However, the title or deed alone may not suffice to give the house to the person owning it on paper.
- Contributions to the house during the marriage
Spouses could claim part ownership even in a house that belongs to separate property if they made financial and non-financial contributions. Those include repairs, improvements, down payments, paying off the mortgage interest, etc.
- The existence of a prenup or postnup
- The presence of minor children
The courts believe staying in the family residence is in the children’s best interests. For this reason, they may award a family house to the primary custodial parent. The judge will also consider the marriage duration, each spouse’s earning capacity, and several other factors. As we discuss below, this might be accomplished through selling the house and renting it back.
Explore Available Options for Dividing the House
If the house is shared property under your state’s laws and you want to keep it to yourself, you have several options.
- You can buy out your spouse’s part of the house.
To keep the house, you must compensate the other spouse for their equity share. Home equity is the house’s current market value minus the mortgage and other liens. Thus, you must evaluate your house and pay the other spouse their portion of the home’s value.
One option to determine the value of the house is to hire a real estate agent. Another option is to look at the prices of similar properties in your neighborhood. You can also use free online services that approximate the value of the home after you enter some initial data about it.
Note that this last method is not a reliable source of information and can only give you a vague understanding of the current market value of similar houses.
- You can continue to co-own the house after the divorce.
Continuing to co-own a house after a divorce is less common than a buyout or selling it. Still, it’s a beneficial option for some ex-spouses who sell the property later, allowing one spouse to continue living there. Couples with children favor co-owning since they can maintain a stable environment for their underage and emotionally vulnerable kids.
You must agree on whether you’ll share mortgage payments and who will stay in the house permanently. On top of all the necessary arrangements, continuing to co-own the house after divorce means ongoing interaction with your ex, making it challenging to start afresh.
Co-owning the house after divorce presents potential benefits, including the opportunity to wait for a financially better market situation when your home becomes more valuable. Additionally, co-ownership provides extra time to buy out your spouse’s portion of the house.
- You can exchange the house for other assets.
You may offer your spouse some assets of the same value as their share in the house. List the assets your spouse would be interested in receiving, e.g., retirement accounts, cars, artwork, or other valuable properties.
Then, you’ll have to negotiate with your spouse or their lawyer to reach and sign a divorce settlement agreement. It is a legal document that, when approved by the judge, becomes binding for all the parties. Thus, ensure you understand the provisions and all consequences of your decisions.
- You can sell your house and stay there as a renter.
You have another alternative to continue living in the house after divorce but avoid many complications related to its maintenance and mortgage. A popular option nowadays is to sell the family home and rent it afterward.
It will allow you to cash out the equity held in the property and use it for paying off loans and everyday necessities. Another benefit of renting is you may not have to worry about spending money or time on repairs or keeping the property in good condition.
The property management company often takes care of those things for you.
Look into Sell2Rent.com to simplify your living situation and eliminate the complexities associated with homeownership.
Consider the Financial Consequences of Keeping the House
If you buy out your spouse’s share in the family residence, you usually need to use your separate assets to pay for it. Of course, you can offer other assets in exchange for the house. But you also must think if it is worth giving up a considerable amount of your property.
The most crucial thing in this situation is determining whether you can afford to keep the family home. You will typically be left with mortgage payments unless you agree otherwise in a settlement contract. You may also choose to refinance your mortgage.
If you sacrifice most of your savings and valuable assets, will you be comfortable paying property taxes and maintenance bills later?
Paying off the existing or refinanced mortgage and removing your spouse’s name from the deed can be challenging if you have bad credit, insufficient income, or few assets. In addition, homeowners usually pay property taxes, home insurance, and HOA or similar fees.
You must also pay capital gains tax if you decide to sell the house later. According to IRS rules, you can exempt $500,000 from this tax if you and your spouse sell your home together. To qualify, you must have lived there as a family for two out of five years before its sale.
If you avoid selling the house in divorce and co-own it with your ex-spouse, you may not qualify for a particular tax exemption. In this case, you might have to pay the capital gains tax in full on the sale proceeds.
In addition, it would be best to prepare to lose some money if you decide to keep the house after the divorce. You might also need a financial planner’s assistance to understand the tax implications of all your decisions regarding property division.
Employ Mediation to Agree on the House
Mediation, is a peaceful low-cost method for resolving disagreements about divorce terms, including house matters. Spouses ready to engage in respectful communication can hire a mediator to facilitate negotiations and offer different ways of resolving property conflicts.
Before attending mediation, collect essential data about the house. In particular, get the mortgage papers, ownership records, and other documents that might affect the decision about the home.
If you want to keep the house and your spouse hesitates, you can brainstorm some creative, mutually acceptable solutions. Discuss potential options with your spouse in the presence of a mediator and analyze both your financial capabilities. After considering all the pros and cons, your spouse may give up their claims to keep the house.
Remember to put all the terms you’ve negotiated into the divorce agreement. You will need this document signed by both parties when you file for divorce.
The question of how to keep the house in a divorce requires careful consideration and planning. It can be complicated but also manageable.
In particular, by assessing financial factors, negotiating, and contemplating buyouts or selling the house, you can choose the most suitable course of action for your circumstances.