What to do With the Family Home in a Divorce

It’s the American Dream. Every person in America dreams of the day where prosperity and stability meet long enough to secure a private parcel of land and a familial castle. Then divorce happens and the dream is shattered. That home, once a symbol of achievement and happiness, is now a point of contention and a financial albatross.

What do you do with it? As always, that depends on your circumstances. In many cases, keeping the house is not an option, as finances won’t allow it. In others, it might be as simple as refinancing the mortgage and paying off one party’s share. Consider the following before discussing the matter with a divorce attorney.

Who Owns it?

This may seem obvious, but sometimes it is not. Did one party own the house before marriage? Was it paid for by separate property, such as an inheritance or pre-marital savings? Is there a governing agreement, such as a prenuptial agreement?

For most parties, they bought the house together post-marriage. Generally, property acquired during marriage is marital property, as long as it wasn’t paid for by one party’s separate funds. Even if the house was originally acquired before marriage, some part of the equity may be marital if payments were made on the house after the wedding. That equity may have to be bought out or settled in divorce proceedings.

Can You Afford it?

Another important consideration is whether either spouse can afford the house alone. When children are involved, a common preference is for one spouse to stay in the house with the children while both share the payments. Once the children leave for college, the house is sold and proceeds divided.

If there are no children, keeping the house might be a terrible decision. If one party keeps the house, can that person make the payments alone? Consider the mortgage, insurance, utilities and all other costs now being covered by a single income. Plus, the spouse with the house will probably have to pay their ex for that person’s share of the pre-divorce equity.

Refinancing?

If one party keeps the house, refinancing is a must. Divorce is a financial nightmare that is best kept brief. If you do not refinance the house in one party’s name, a lost job or missed payment can ruin the other spouse’s credit. No matter how much you might trust your ex-spouse’s ability to pay the bills, there is no accounting for acts of God or future recessions. If refinancing not an option, selling the house (even in this terrible economy) might be the best bet.

Throw in the Towel

If the decision to sell the house has been made, it will probably be a while before it sells. That doesn’t mean that you should wait to divorce. Often, your attorney can write the sale of the house into the final divorce settlement. When it does sell, each party will share in realtor expenses and any funds received from the sale.

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