3 Strategies to Protect Your Biggest Asset in a Divorce: The House

The pool was green. The septic system was all backed up,” said David Dorman, a real estate agent in that area with 20 years of experience. What’s more, the ex-wife thought to be living there had moved out and wouldn’t cooperate with showings. “It got so bad that [the ex-husband] had to petition the court to give him sole custody of the property to maintain it.”

So much of our lives and our emotions are wrapped up in our homes that when divorce enters the picture, homeowners can damage one of their biggest assets while fighting over who should have done what—or, as in this case, trying to get back at the other.

While there are several divorce asset protection strategies, such as having a prenup, there’s actually another that’s relatively less costly in the short term: keeping the marital home in good standing so that both exes can reap its maximum value upon a sale.

A house is one of the biggest assets that a married couple has—and can provide a significant amount of money to each spouse once it’s sold in a divorce. Research shows that Americans on average have $150,506 of wealth tied up in their homes. (If you own your house free and clear with no outstanding debt, bump that average wealth nationwide to $229, 296.)

However, many people don’t see that big picture amid the acrimony. “I sell a couple of hundred homes a year that are foreclosed properties for banks and government, and a huge chunk of those are as a result of a divorce,” said Tim Ray, a top agent in Kansas City, Missouri who regularly helps divorcing couples sell their home. “People just throw their hands up because they don’t know how to deal with their situation.”

Here’s another way to protect your house in a divorce—or rather, its overall value.

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Keep up with the mortgage payments

Lenders say that divorce is one of the top five personal scenarios—life events beyond negative equity and rising interest rates—that can lead to foreclosure. Commonly referred to as “the five D’s,” they also include a death in the family, drugs or alcohol dependence, disease leading to unexpected medical bills, and the denial of a lifestyle that can’t keep up with mortgage payments.

Yet even if a divorced couple avoids foreclosure, they may get less out of a home sale than they’d like. Shawn Leamon, a certified divorce financial analyst in Dallas, Texas, who hosts the popular podcast “Divorce and Your Money,” said he’s seen several short sales where lenders agree to let divorced couples sell their homes for less than they owe on the mortgage in lieu of foreclosure because of ignored payments or maintenance.

An ex who wants to keep the property likely will refinance to qualify for a mortgage with his or her sole income and buy out the spouse’s share of equity. However, sometimes a couple wants to sell the house outright, resulting in either “impaired communication” over who should pay the mortgage, emotional and financial stress related to this, or one party ignoring the payments out of spite.

That was part of the issue with the scenario that Dorman recalled above. “She wasn’t paying the mortgage,” he said. “He’s the one that’s still on the deed, on the [promissory] note. So he had to step in and petition the court to give him some control over the property so that he could keep it from going into disarray.”

The ex-husband has taken the home off the market. “He’s fixing it up, and hopefully, we’re going to have it back in several months when he can fix all the finances with it too,” Dorman said.

A divorce agreement doesn’t legally change the terms of your original mortgage, according to Lynnette Khalfani-Cox, personal finance expert at AskTheMoneyCoach.com and author of Zero Debt: The Ultimate Guide to Financial Freedom. If both people co-signed for the house, credit cards, a car loan, or any other debt, creditors can legally pursue either for repayment.

Selling the home is the best way to protect the credit rating of both parties because your joint obligation is satisfied, Khalfani-Cox notes. Until then, so that you’re not just crossing your fingers that your ex pays the mortgage as agreed, she suggests talking with your divorce attorney to include in your divorce agreement a Property Settlement Agreement (PSA), which addresses several aspects related to the house. For instance:

  •  Noting your ex is assuming full ownership and liability of the home, including an effective date for the property taxes.
  •  A clause indicating that until the divorce is finalized, the mortgage company is to provide you with a copy of the monthly statements so you can monitor the payments.
  •  Any financial penalties and consequences to be imposed in the event of a missed payment, such as a cash payment to you. An attorney also can indicate that any failure on your ex’s part to pay the mortgage effectively amounts to a judgment in your favor.

Maintain the property and complete necessary repairs

The state of your house can be indicative of what’s happening in the rest of your life. If your marriage isn’t going well, that’s reflected in your house, Leamon said. “Divorce usually is many years in the making. I’ve seen plenty of cases where the house doesn’t get taken care of for years. It just compounds,” he said.

Disrepair isn’t solely a matter of bitterness. Sometimes it’s financially or emotionally overwhelming to perform the upkeep. “I’ve seen that happen before where the person who ends up living in the house either can’t afford to maintain it, or they just don’t care to maintain it,” said Dorman. “It ends up costing everyone money in the very end. The house sells for less because everybody is looking at the deferred maintenance.”

Again, you can speak to your ex or your divorce attorney about what’s needed to get the house in order and extract a good selling price. A divorce decree or even a separation agreement can be so detailed as to discuss who is responsible for home repairs and how to get approval for those costs.

Stacey Wyatt, a top-selling agent in the Atlanta area, worked with one couple who had been separated for at least a year. The estranged wife, who was living in the house with the couple’s children, worked a full-time job and was overwhelmed trying to maintain the property.

The agent outlined repairs that “weren’t extravagant” but necessary for the asking price and consulted with both spouses and even a judge to approve the expenses. “The divorce decree was pretty specific on what money could be spent and who had to approve it,” he said. “I spent multiple phone calls with the husband and the wife, and then both of them on a conference call, trying to outline how much it was and who was going to do it, and then make sure that it got approved.”

A man taking notes on divorce asset protection strategies.
Source: (Alejandro Escamilla/ Unsplash)

Rely on experts in your corner to give you impartial advice

Divorce is one of the top three stressful life events people can experience, along with the death of a spouse and a marital separation, researchers say. So even if you and your estranged spouse are somewhat amicable, trust that you’ll need third parties such as a divorce attorney, a real estate attorney, a real estate agent, or a financial planner to guide you through the particulars.

“Divorce is not a DIY project,” Dorman said.

“You need an unbiased person to be realistic and help you sort things out before it gets uglier than it has to.”

These experts can assist you with the “million different what-ifs that you’re trying to juggle,” Leamon added. “I have zero emotions about the situation. Unfortunately, it’s their whole lives.”

Experts like these will focus on your financial best interests because of their specialties. They can counsel you about how your immediate feelings could impact your finances down the line.

How do we get you through this situation so you can make the smartest decisions you can, so you don’t look back and say, ‘I should’ve done this differently?’” Leamon said. “It’s complicated, but it’s not hard. If you take the time to educate yourself, you go through the process a lot more informed … so you can move on in a happier healthier way.”

The quickest and best way for both of you to get the most equity out of the house is to sell it, Dorman said. “To make that happen, there needs to be a higher level of compromise, usually from one person than the other, which is unfortunate. But sometimes you have to put your emotions aside and realize that if you don’t—if you dig in your heels—just because you feel that you’re right, you could end up taking a lot longer to sell your home. There’s a saying I used just the other day: ‘Just because you’re right doesn’t mean you have to be right.’”

As you work through this difficult part of your life, try to view your house not as a place solely of treasured memories but as the financial asset it’s always been. Protect that asset as much as you can during this process, and you’ll reap the rewards with a more solid financial future.

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