What Are The Options To Consider When Disposing Of The Marital Residence In A Divorce Proceeding?
In the usual divorce or dissolution proceeding, the disposition of the marital residence is often one of the most important decisions in the case and one of the most emotional issues with the exception of “custody” of the minor child or children. One or both parties may have very strong emotional ties to the home and may overlook important financial considerations in their quest to “keep” the family home.
I now provide to you my list of available options in disposing of the marital residence during divorce:
- Sell the residential property for the “best obtainable price” and divide the net sale proceeds.
- Sell the residential property for the “best obtainable price” and use the net sale proceeds to pay off marital debt or to pay down marital debt.
- Determine the equity in the marital residence, if any, with one party “buying the other party out” of his or her interest in the marital residence.
- Determine if the home is “upside down” meaning that the mortgage indebtedness is greater than the fair market value of the home.
I shall next discuss each option in greater detail with some cautionary concerns for each option:
- Sell the marital residence for the “best obtainable price” and divide the net sale proceeds. This option works well for parties whose joint incomes could easily pay the monthly mortgage payment but with neither party being able to pay the monthly mortgage payment on his/her individual income. It also works well if the home is in a good neighborhood wherein homes are selling. It may be difficult to impossible if the home is located in an area with many homes in foreclosure and/or in despair. If the sale is truly successful, the mortgage indebtedness is paid in full and neither party remains obligated on said mortgage. This helps both parties re-establish healthy credit scores.
- Sell the marital residence for the “best obtainable price” and use the net sale proceeds to pay off marital debt or to pay down marital debt. This option is used in cases wherein there is an excessive amount of marital debt and paying off the marital debt or paying down the marital debt is the primary concern of the parties. Additionally, each party may be very focused on improving his/her credit score(s) so that each can borrow funds and take out loans in the future.
- Determine the equity in the home, if any, with one party “buying the other party out” of his/her interest in the marital residence. With this option, several determinations must be made:
- What is the fair market value of the home?
- What is the home worth?
- What is a reasonable value to place on the listing price of the home?
- What is the mortgage balance?
If this issue had been raised ten or twenty years ago, each party would have paid for an appraisal of the marital property. In the current environment, the parties usually forego expensive appraisals and consult with an experienced realtor to determine the listing sale price of the home. That listing sale price is presumed to be the “fair market value” of the home. Then, from that fair market value, the mortgage indebtedness is subtracted therefrom, providing the equity in the home.
Example: The parties own a home valued at $200,000. The mortgage balance is $140,000. Therefore, the equity in the home is $60,000. Accordingly, if Husband wants to retain the marital residence, he must be able to pay to Wife $30,000 in cash or other assets. With the same set of facts, Wife would also have to pay to Husband $30,000 in cash or other assets if she desires to keep the marital residence.
The primary problems with this option are as follows:
- Wife wants to keep the home – she decorated it, she wants the children to remain in familiar surroundings, same neighbors, same friends, same school district! But, can Wife truly afford to remain in the marital residence? That issue must be addressed by Wife and her counsel. Can Wife afford to pay the mortgage, taxes, all utilities, etc. for the home? If not, she might be better off to be in a rental property. Likewise, Husband and his attorney must determine if Husband can afford to remain in the marital residence. What if both parties want to remain in the marital residence and each has the ability to buy the other party “out”? This dilemma may be solved by a coin-toss or additional negotiations between the parties or mediation.
- Determine the home is “upside down” meaning that the mortgage indebtedness is greater than the fair market value of the home. This dilemma has become very problematic in the last five (5) to eight (8) years due to the collapse of the housing market. It becomes very difficult when the value of one’s home is well below the mortgage balance. Some persons try to effect a “short sale” of the home and do complete the sale at a price that is less than the mortgage indebtedness. This type of home sale must be approved by the mortgage holder as the lending institution must give its permission to sell the home at a loss for the mortgage holder. And, not all realtors are familiar with effecting a “short sale” transaction. And, some realtors may not even express interest in selling a home via a “short sale” as there are lower realtor’s commissions to be earned by the realtor. If a “short sale” cannot be effected, some persons choose to lose their homes in foreclosure proceedings. They may begin by stopping to make monthly payments on the mortgage thereby triggering the mortgage holder to initiate a foreclosure action. Why would a party choose this option? Quite frankly because he or she can often have occupancy and possession of the home without making mortgage payments for up to twelve (12) or fifteen (15) months. Of course, the party choosing to remain in the marital residence must continue to pay for all utilities, property taxes, and liability insurance. A party electing this option will then file a personal bankruptcy action to discharge the mortgage indebtedness.
Holzfaster, Cecil, McKnight & Mues Can Assist In Divorce Proceedings And The Issue Of Marital Residence
As explained above, there can be “perils and pitfalls” in trying to dispose of the marital property in the most efficient and economic manner possible. It is important for these issues to be thoroughly discussed and addressed with a seasoned family law or divorce attorney. At Holzfaster, Cecil, McKnight & Mues, we will analyze all the marital residence options and assist in problem-solving to protect our client in these most difficult legal situations.
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Anne Shale is of counsel to Dayton, Ohio, law firm, Holzfaster, Cecil, McKnight & Mues. She is a former registered nurse and concentrates her practice in Family Law and Divorce cases.