Divorce and Your House - Splitting Your Assets
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Wow, what a tough subject to discuss...
For those of you that have never gone through the heartache and turmoil of a divorce, no explanation will suffice. For those of you that have "been there" no explanation is necessary.
Divorce affects everything in our life, whether we like it or not, especially if you have children. None of the decisions that you make during this time will be easy, but many decisions will be required of both you and your spouse.
I have been In the field of finance for over 20 years. I've worked for both Mortgage Lenders and Brokers, and have also been Real Estate Licensed. I have seen many fine people forced to work through these difficult issues.
One of the most difficult aspects of a divorce can be the splitting of your combined assets. This includes your home. Understanding your options and their potential consequences (good or bad), will help a great deal in arriving at the best solution for your circumstances.
First you need to decide who if anyone wants (or needs) to live in the house. Many times neither party wishes to stay in the home due unpleasant memories. Other times, the court may decide which party (if any) will stay in the house.
Here are the 4 fundamental choices as it relates to your home and mortgage. It is critical to fully understand the ramifications of each of these 4 choices, before making a decision.
- Sell the house and split the profits
- Buy the house from your spouse
- Sell your equity in the house to your spouse
- Maintain joint ownership
Sell the home and split the profits
The primary goal is to sell the home as quickly as possible for as much as you can reasonably get, considering your circumstances. And you MUST consider your circumstances. Here are a couple of reasons why.
If it takes an extended period of time to sell, will you both live there, even though you are going through or have just completed a divorce? That may make sense when you see your finances on paper, but it is very hard to do in the real world.
There is usually an extremely negative atmosphere in a home where two people wish to be apart. Especially after the attorneys "get through with you". If you think you had problems before court, just wait until the attorneys and judge get involved. If you do choose to sell the home and split the profits, it's probably wise for one of you to make other temporary arrangements while the house is for sale.
This also means that you should price the home reasonably, not expecting top dollar unless you can financially and emotionally afford to wait for a great offer on your home. Most people aren't in a position to take their time with the sale.
Remember that in the end the profits may not be equally divided. Factors that may influence the split include the terms of your settlement, the original source of the down payment, and the property laws in your area.
Buy the house from your spouse
Consider the income of your new household. Are you dropping from two salaries to one? Are you able to afford a similar monthly mortgage payment by yourself? If you wish to maintain the house as your primary residence, these factors must be addressed. Also, if the original mortgage is in both of your names, then you face the challenge of refinancing on your own merit. That means your credit history, job history and debt to income ratio.
Sell your equity to your spouse
This should provide you with funds to find another place to live. How much, will depend on the equity in your home after real estate commissions. There may also be tax implications that you will need to be aware of.
Make absolutely certain that you DO NOT remain on title if you have been bought out. You need to be taken off of the old mortgage and title if you were on it. If that isn't done you may remain liable for any late payments (ruining your credit), back taxes etc. (debt) that your ex spouse may incur.
Maintain joint ownership
You may choose to delay the decision regarding the ultimate possession of the home for a time, with one of you remaining as a resident. Although this may have no short-term financial ramifications, make sur to consider the potential tax consequences. From the original time of the divorce to the final disposition of the home, the tax obligations and deductions of the home can change.
Also be aware that in some states, in some circumstances, that your spouse may be able to obtain a 2nd mortgage on the home without you being aware of it!
If you found this article to be helpful, please forward it to other friends and family that may need the same information. Splitting assets properly and equitably can be a very difficult and emotional task. I wish you well in this endeavor.
If this article has been helpful please take the time to rate it, thanks!
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Good Info :O)
Thanks for the feedback and I'm glad you found the information helpful!
I just wrote a book called Fatal Divorce Mistakes, with an incredible amount of information for anyone going through a divorce.
great information. it's always good to be prepared to file paperworks for divorce pertaining to assets. some can be found at http://www.edivorcecentral.com
Very informative. Dividing the equity in a marital home can be more difficult than ever due to the poor condition of most housing markets. Many couples may even find that they are upside down on the marital home-- raising the issue of dividing marital debts between spouses.
I agree, these are very trying times indeed.
And marital assets are just one part of the divorce equation.
I've just written a book called Fatal Divorce Mistakes. It covers multiple facets of the complex issues involved in a divorce, especially a high conflict divorce.
I wish anyone going through a divorce the very best. It is difficult at best and devastating at worst!
Oh Rick, you make it sound so easy. I was married 40 years. We had a business but he took 10 years to hide everything he could. He did a good job.
I finally just had to let go and let God. Good luck with your writings. Kay
Kay,
I'm not sure what part I made sound easy. I would never describe any part of divorce as easy. :)
The entire process of a divorce is one of the most complicated, physically, emotionally and spiritually challenging events that anyone can ever go through.
I have certainly laid out some logical and viable solutions to part of a very complex problem. But as your own circumstances so aptly illustrate, "takers" are takers and refuse to govern themselves by the same rules as the rest of society.
High conflict personalities have an incredible ability to rationalize why they "deserve" to get their way in every situation. Look up the definitions of narcissism, borderline personality disorder, or antisocial behavior and you will understand a bit better what drives these people.
Thanks for your comment and I am sorry for your pain. I wish you the best and continued healing.
Rick
Kim,
Talk with a good accountant or tax attorney!
Make sure it's someone that is qualified to assess your situation in full, and to make the appropriate recommendation after reveiwing your entire situation.
Rick
Does my xspouse receive all the cash, once I buy him out???
Cheryl,
There can be many extenuating factors in the division of assets.
In theory, if there is nothing else to consider it's simple math. If you are buying him out for x amount of dollars then that money is his.
If he has other obligations to you in the overall split, or has additional obligations to the government (taxes etc.), then of course that would affect how much he actually retains when it's all said and done.
I hope I have helped!
Rick
seekingclarity,
Talk with a good accountant or tax attorney!
Make sure it's someone that is qualified to assess your situation in full, and to make the appropriate recommendation after reveiwing your entire situation.
It's very sad to think that both of you have invested the greater part of your life in this relationship only to end up in this position. I'm really sorry to hear that.
Rick
Again my legal disclaimer: I can not provide you with legal or professional accounting advice on this matter.
Having said that, this is one of those occassions when hind sight is always perfect! You should have had a legally binding document drawn up and signed when you first entered into this transaction.
My intent is not to make you feel bad about a mistake, but to help you learn from one. Expect the best in every situation but ALWAYS prepare for the worst. The cost to protect yourself would probably have been a few hundred dollars at most, yet you have $88,000 at risk at this point.
I would discuss your situation with an attorney as soon as possible. Find out if the limited paper work you have will provide you any protection at all for your investment.
Obviously by your question, you have a concern about your ex honoring your original agreement. Has he actually told you that he won't or are you just concerned that he might not?
If he does still intend to honor his original commitment, then you can tell him that you would like to work something out to either sell and split the purchase price (according to your original investment proportions) or purchse his equity in the property. But before you do that make certain that you have solid figures in hand to present to him so there is no ambiguity about what you expect regarding the percent of his equity. You may find that he hasn't altered his expectations and might even welcome being "cashed out" of this deal.
There are too many variables to cover here but he may agree to this without an issue. If he doesn't agree willingly than you may have legal recourse, especially if you have a banking paper trail as to where the original downpayment came from and the email that you have to support your claim.
Best of luck!
Rick
Men and Divorce 3 years ago
What happens when neither spouse can afford the house alone? What happens when you can't sell the house because of a bad market? What do you do when there is negative equity in your home because of tumbling housing prices? There are an infinite number of scenarios that can occur during a divorce that it is hard to acount for everything, but with today's economic conditions, the decision about what to do with the house is alot easier said than done!