How Is the Home Titled and Who Is on the Mortgage?
This will help to determine the options that are available for you. For example, if both parties are listed on the mortgage, and if one wants to keep the home, he or she will need to qualify for a refinance to remove the other’s name and take on the debt in full. And if the home is jointly titled, the party relinquishing it will need to execute a quitclaim need, special warranty deed or general warranty deed for the other.
Is the Home Marital, Separate, or Hybrid Property?
Regardless of how the property is titled, if the home was purchased during the marriage (date of marriage to date of separation), with funds earned during the marriage or commingled with funds earned during the marriage, then it is marital. If it was purchased before the marriage, or after the date of separation with non-marital funds (and titled separately), then it is separate property. Refinancing during the marriage may also transmute a previously separate property into a marital asset. Hybrid (part-marital, part-separate) property is created when a down payment is made with separate funds but mortgage payments are made from marital funds, or through any number of scenarios involving down payments and mortgage payments generated from multiple sources. In such cases, there are a number of credible ways to determine what share of the home’s equity should be assigned to each party, including the commonly applied Brandenburg mathematical formula.
What Is the Equity in the Home?
The equity in a home can be determined by subtracting the remaining mortgage balance from the current fair market value, as determined by a tax assessment (often less accurate) or an appraisal (often more accurate). It’s best to spend the $250-$500 to have your home appraised, in order to come up with the most precise and current figure. If you are presented with negative equity (meaning that your home is “underwater,” with the remaining mortgage balance greater than the home’s value), and you opt to sell, then you may need to come to the table with money at closing. Many divorcing couples have also explored a short sale, which has become an increasingly attractive option for people with significant negative equity and without the funds to cover such a shortfall.
Can One Party Buy Out the Other, Refinance the Home, and Keep it?
There is often a showdown over this issue. For example, the parties may have recently purchased their dream home, or may have made many “labor of love” home improvements over a lengthy period of time. People become sentimentally attached to their homes, or in the alternative, have a practical view of the investment potential for future market growth. Both parties may want to keep the home, but only one can do so. Actually, if the court has anything to say about it, neither party will. Generally speaking, if this issue arises in an equitable distribution trial, the judge will simply order that the home be sold and the proceeds divided (usually equally, although that can depend on any number of additional factors at play). The court does not want to get involved in forced refinancing when there is a clear path to sale, or even sale at a loss. Because of the inevitability of this outcome, the party who wants the home more can typically be leveraged for concessions in other areas, in exchange for his or her spouse’s cooperation.
Do the Parties Want to Sell Instead, and How?
If the parties both agree to sell the home, the terms of sale need to be explicitly and carefully drafted. Who pays the mortgage, utilities, taxes and insurance until sale? Who selects the realtor and what are her parameters? Who pays for repairs and improvements recommended by the realtor? Who sets the price, and how often should it drop? How are the proceeds divided? Are their checks in place to prevent stalling, failing to cooperate and even sabotaging the process? No detail is too small to include in a settlement agreement, because every possible scenario during the marketing and sale process has played out at one time or another. These particulars should not be left to a misplaced assumption of good faith and cooperation. If you worked well with your spouse, you probably would not be getting a divorce in the first place. Specifics matter.
These are only some of the issues that commonly arise with the marital home in the divorce process. Each case is unique and requires a specialized analysis. The divorce attorneys at Livesay & Myers, P.C. are experienced in navigating these and many property issues in divorce, and can guide you on an approach that takes into account your personal goals and limitations. From our five convenient office locations, we represent clients throughout Northern Virginia. Contact us to schedule a consultation today.