This is one of the questions I am asked all of the time. Of course, the correct answer is “It depends.” The home often accounts for a large percentage of the entire marital estate. Whether to retain the home after a divorce is often a very emotional issue, especially if there are children involved. It is natural that parents want to maintain as much stability for their kids as possible when going through a break up. One would assume that keeping the kids in the marital residence after the divorce is important. But interestingly, the psychological studies show that divorced children are not really affected by the retention of the marital home. The key factor is the stability of their parents, not what house they live in.
It is important to realize that unlike spousal and child support, property division terms cannot by law be changed after the divorce is completed. The first step in the analysis is to prepare an accurate anticipated budget and determine if it is feasible to pay the mortgage, taxes, and utilities. Don’t forget to consider necessary repairs and upkeep to the home. Hiring a housing inspector to evaluate these future costs often makes good sense. Also, consider that the spousal support term may be years less than the payoff on the mortgage. Another important consideration is what you would need to pay or trade off to buy out your spouse’s share of the equity in the home. Often times, the only solution is for a party to sacrifice a large portion of the equity he/she would receive from their spouse’s retirement plan. Does that make good sense?
Many courts are requiring the sale of the real estate unless one spouse can refinance the property in a year or less. Divorce court judges attempt to do everything within their power during the initial divorce proceedings to disentangle the parties and their assets as much as possible to avoid future court involvement. But the “flat” real estate market of late has somewhat impeded that laudable objective. However, if it is clear to the judge that it is going to be virtually impossible for one spouse to shoulder the mortgage and associated payments and also remove the other spouse from the note and mortgage, there is typically only one option- require the property to be listed for sale regardless of the poor market conditions. If there is little or no equity in the property, your attorney can also assist in working with the mortgage company to attempt to arrange for a “short sale”. This process, when approved by the mortgage company, eliminates negative equity situations so that the divorcing parties selling their home won’t have to come up with cash at the closing. If, on the other hand, you are one of the fortunate and have positive equity in your home, the IRS allows an exemption of up to $500,000 per couple, or $250,000 per individual, on any capital gains arising out of the sale of the property. There are a few other conditions that must be met to claim the capital gains exemption, so be sure to consider the issue carefully.
Some courts, particularly in other states, allow co-ownership of the real estate for years after the divorce. This does not seem to be the norm in Ohio. Co-ownership often creates an extreme disadvantage to the party not occupying the former marital home because his/her debt ratio would include the prior mortgage obligation, and typically it will result in precluding that party from qualifying to purchase another home until he/she is removed from the previous mortgage. Additionally, co-ownership of real estate requires continued co-operation and this situation is often doomed to failure because of residual animosity.
Parties going through a divorce often don’t have enough income between them to support their life style while living as a family under one roof. Therefore, the reality for most divorcing couples is that they will need to “downsize” their life style. While this may initially appear to be a sacrifice, the prudence of this approach can not be over emphasized. Preserving as much long-term financial stability as possible without undue emotional loss should be a priority for those winding down their marriage. It may be far more prudent to live in a smaller home with a lower mortgage payment and expenses, and protect your future retirement dollars!
Hire an experienced family law attorney that will work with you and other professionals so that you are able to make both an informed and prudent decision. Some divorce attorneys will work in conjunction with other professionals such as certified public accountants and Certified Divorce Financial Analysts to evaluate the “economic side” of this issue. Be careful not to allow your emotions to dominate your decision making process.
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Robert L. Mues
Robert Mues is the managing partner of Dayton, Ohio, law firm, Holzfaster, Cecil, McKnight & Mues, and has received the highest rating from the Martindale-Hubbell Peer Review for Ethical Standards and Legal Ability. Mr. Mues is also a founding member of the "International Academy of Attorneys for Divorce over 50" blog.