In the vast majority of the cases we see involving children, at least one party wants to keep the marital home. After all, the family home often carries significant emotional ties and memories. It is also a place of comfort for most children. But doing so might not be as easy as you think, or the most practical decision. With that in mind, here are five things to consider when deciding whether to try to keep the marital home in your divorce.
- If you keep the marital home, will you be able to fairly divide the marital estate?
In dividing the marital estate, the goal is to fairly divide your assets and debts. Generally, this means that both you and your spouse should be walking away from the marriage with approximately 50% of the total marital estate. If you have multiple large assets worth roughly the same amount – for example, your primary family home and a vacation home in Aspen both have net equity of $600,000 – you might just agree that one of you gets the family home, and one of you gets the vacation home. Because the two properties are worth the same amount, they cancel each other out in the division of the marital estate.
But, say that your marital estate is worth a total of $800,000 and the net value in the marital home makes up $500,000 of that: both you and your spouse should receive approximately $400,000 of marital property. Since the portion of the marital property, you are entitled to is less than the value of the marital home, you will not be able to equalize the marital estate without finding another source of funds. Sometimes this can be accomplished through a cash-out refinance. If that’s not an option, sometimes a family loan or a buyout over time can be considered.
- Will you have sufficient funds to live on?
Even if you have sufficient assets to take the house and properly equalize the estate, will you have enough to live on after the divorce? Say the net value of your marital home is $500,000 and the total marital estate is worth $100,000,000, mostly in cash and investments. Technically, you could keep the marital home and still equalize the marital estate, but your ex would get the majority, if not all,of your share of the cash and investments. If keeping the marital home means you are unable to afford your regular expenses, much less maintain any savings to be used in case of an emergency, keeping the house isn’t a practical decision.
- Will you be able to get the other party’s name off the mortgage?
Next, consider whether you have the resources and are eligible to refinance the mortgage to remove your ex-spouse from liability for the home. Here are a few things to consider:
- Is your credit score high enough and do you have enough income that you will qualify for a loan on your own?
- Do you hold enough equity in your home to qualify for a refinance?
- Do you have significant debt that would make you ineligible to refinance?
- Will the interest rate on your mortgage increase if you refinance? And if so, can you afford the monthly payments?
If you can’t refinance, you and your ex-spouse could agree to co-own the marital home for some period after divorce. But much like co-parenting, co-owning a house after divorce can be complicated. You will need to work with your ex-spouse to determine how mortgage payments will be split, who will pay for the maintenance and upkeep of the home, and who gets to live in the home. And, co-owning likely means that both your name and your ex-spouse’s name will not only stay on the mortgage, but also on the deed of the home. If you are thinking about co-owning and you would be the party to move out of the marital home, make sure that your name stays on the deed. Otherwise, your ex-spouse could unilaterally decide to further encumber the house without your knowledge. Finally, consider whether the person moving out of the marital home has sufficient credit and finances to purchase a new home to live in if they are still obligated on the mortgage of the marital home.
- Are there more practical solutions available?
Before deciding that your only choice is to stay in the marital home, consider whether you can downsize to a condo or town home nearby. If you are concerned about removing your kids from the school and neighborhood they grew up in, it’s possible that you can find a new place to live nearby and keep them in the same schools.
Even if you don’t have kids, keep in mind the cost of maintaining a home. After dividing the marital estate, things as simple as mowing the lawn may become an added expense you wouldn’t expect. Whether you had a lawn mower that your ex got in the divorce and now you have to buy a new one, or you used to be able to afford a gardener but now you can’t, the underlying costs of owning and maintaining a home can add up quicker than you might expect. Moving to a smaller, more manageable home can reduce your costs and still provide you with a lovely place to live.
- No matter what, divorce will be a disruption.
There is no getting around it: divorce is an emotionally challenging time for parents and children alike. Ultimately, whether you decide to keep the marital home or sell it, going through a divorce will be a disruption in the lives of everyone involved. The good news is that a well-managed sale of the marital home does not have to be a source of long-term stress for your children. It’s understandable that the thought of moving your children out of the family home is frightening – but children are resilient. If keeping the family home is not a practical financial decision, the stress of trying to keep it will only cause more turmoil for you and your kids. Ultimately, you have to make the decision that ensures long-term financial stability and comfort for both you and your children.
For a consultation or for more information call (303) 309-1077. Our office is located at 1660 Lincoln Street, Suite 1525, Denver, CO. 80264.