Getting a divorce is a life altering experience whether you want a divorce or not. Every piece of property you own with your spouse, including your home, needs to be divided, either by agreement or by the court, before the divorce can be finalized. For many families, the marital home is the largest asset to be divided. How the marital home gets divided depends upon whether or not the house has equity, whether or not one of the parties will remain in the home, and, most importantly, the parties' financial circumstances.
There are several ways to divide a marital home, depending on the parties' circumstances. If the home has equity, the parties essentially have two options: (1) the parties sell the home and divide the proceeds; or (2) if one of the parties would like to continue to reside in the home, that party will purchase the home from the other party. The first option is simple enough: if neither party wants the home or can afford to purchase the home from the other party, the parties simply sell the house. The net proceeds (after all real estate taxes, expenses, etc. have been applied) are then divided between the parties. Although it is common to divide the proceeds equally between the parties, this division may not be appropriate in all cases. For instance, in cases where one party makes significantly more money than the other party, the Court may order the parties to divide the proceeds 60% to the party who earns less money and 40% to the party who earns more money. The idea is that both parties will take their respective share of the proceeds and use those funds to purchase or rent a new home.
The second option, where one party purchases the home from the other, is a little more complex. In order for one party to purchase the home from the other, it is important to know the value of the home, whose name is on the mortgage (if any), and whose name is on the title. This information helps the parties assign a value to the home, and allows one party to pay the other a percentage of that value. Typically, the purchasing party will give the other party a percentage of the remaining equity in the home, which represents the buyer's share of the home. This percentage is usually 50, but does not need to be depending on the circumstances. To calculate the equity, the parties will subtract any mortgage amount owed from the fair market value of the home. The buyer will then give the other party cash or property in lieu of cash that equals the amount of the other party's share of the equity. For instance, if the parties' home has a fair market value of $250,000.00, and the parties still owe $150,000.00 on the mortgage, the equity is $100,000.00. If the parties are going to split the equity evenly, the buyer will need to give the other party $50,000.00 cash in order to purchase the home from the other party.
Assuming the buyer is able to come up with the cash to purchase the home from the other party, the buyer will then need to take the steps necessary to indemnify the other party from any liability in the home. If the buyer's name is the only name on the mortgage, then the buyer will simply indemnify the other party from any and all expenses associated with the house in the parties' divorce papers. If both parties' name is on the mortgage, then the buyer will need to refinance the home in order to remove the other party's name from the mortgage. The buyer is typically given time to accomplish this; however, if the buyer is unable to refinance the home, the other party may require the buyer to sell the home. Once the other party is indemnified, whether through language in the parties' divorce papers or via a refinance, the other party shall sign over the title to the marital home to the buyer via a quit claim deed. Once the buyer receives the quit claim deed, they own the home free and clear from the other party.
If the property has no equity, the parties have fewer options. First, the parties can still sell the home, but will need to be prepared for any short sale. In other words, if there is going to be a short sale, the parties will need to come to the table with funds, and will need to decide where those funds will come from. Unfortunately, a second option is to let the house simply go into foreclosure. If you and your spouse need help deciding how to handle your marital home in divorce, feel free to contact our office today for your free consultation.