In the wake of a divorce, it’s usually the case that someone wants the house. That’s according to Jordan Bennett, a top 1% real estate agent in Mission Viejo, CA, who is a certified specialist in working with divorcing couples to sell their homes.
Who ultimately gets the house in a divorce (if anyone) depends your state’s laws, whether you purchased the home before or after you were married, whose name is on the deed and mortgage, any prenuptial agreements you had, your finances, and each partner’s wishes.
Before you meet with the mediator or lawyer who will help you and your soon-to-be-ex-spouse work out the details of your separation, you want to understand your options.
“Real estate can be an emotional piece of the whole process,” says Rachel Fishman Green, an attorney and certified mediator in Park Slope, Brooklyn, who’s been in practice since 1995. “I think it’s best to consider all of the options before making a decision.”
A house is most likely your biggest asset. For the sake of your financial future, you want to come to a resolution that is equitable for both parties without letting animosity cloud your judgment.
Here are 6 options for what to do with the house in a divorce, and some things to consider with each route.
1. One Spouse Buys Out the Other and Gets to Keep the House
Often, one or both halves of the couple want to keep the house, especially if children are involved. Learning that their parents are getting divorced is a lot for kids to deal with—parents don’t want to add the uncertainty of moving to a new home into the mix.
In that case, one spouse generally has to be able to buy out the other spouse. “The usual thing to do would be to figure out if one person can buy out the other, and if not, they sell it,” says Green.
If a home was purchased recently, buying out your spouse (or vice versa) might be feasible, since you won’t have had time to build much equity.
But more likely it will require the person staying in the home to come up with a significant amount of money, which can be challenging. Remember, all of your assets, including your savings, will be split, so unless you have a hefty joint savings account, you need another source of cash.
Often one spouse will borrow money to buy the other one out. Or sometimes one partner has significant premarital savings that would be excluded from the split. Another option is to do a cash-out refinance, and use the cash to buy out the spouse not staying in the home.
Essentially, in this scenario, the person that gets to keep the home is the one who can afford to.
That person also must be able to qualify for the mortgage on their own, says Bennett, because generally instead of transferring the mortgage, the spouse that keeps the house will refinance it in their name.
Things to Consider:
- Can either person afford to buy out the other?
- Can the spouse who remains in the house qualify for the mortgage alone?
2. One Person Lives in the House Until Both Are Ready to Sell It
If neither person can come up with enough money to buy the other one out but both agree that it’s best to keep the children where they are, couples can agree to keep the custodial parent in the house for a set period of time—usually until the kids leave home—and then sell it.
Often, in that setup, if the higher-earning parent is the one who moves out, they will continue to pay some or all of the mortgage as their child support.
This can start to chafe after a few years, especially if one person wants to remarry, because so much of their money is tied up in the home’s equity.
If you’re considering this arrangement, it is wise to spell out in the divorce agreement how either partner can trigger a sale if they are no longer happy with how things are going.
Things to Consider:
- Will the partner who has moved out feel like they are getting the short end of the stick?
- If you plan to wait to sell until the children graduate from high school, and that is still quite a few years away, what will it look like if either person finds another serious partner?
- Finally, by selling the house after the divorce is finalized, you may be sacrificing the $500,000 capital gains tax exemption for married couples, says Bennett. Be sure to consult with a tax professional to learn the specifics of your situation.
3. Sell the House and Split the Proceeds
If neither spouse can afford to keep the house—or neither wants to—the next most common arrangement is to sell the house and split the proceeds. For couples without children living at home, this is often the easiest way to move forward.
Of course, selling a home presents its own share of difficulties. Getting a home open house-ready, doing showings, and dealing with closing and moving while finalizing a divorce adds a lot of stress.
Couples who sell their house should work with a real estate agent who has experience selling homes during a divorce because this process presents some unique challenges. A top agent will provide concierge-level service, making sure that you’ve got professionals in your corner to handle jobs like cleaning, staging, minor repairs, and moving.
Although divorcing couples usually split the proceeds 50-50, those with prenuptial agreements may divvy things up differently. State laws vary, so check your state rules before listing the home.
Additionally, if one person supplied a large portion of the down payment from extra-marital funds like a gift from their parents or an inheritance, that person will sometimes get that money back before splitting the remaining money.
Things to Consider:
- Selling a home adds another big task to the docket.
- In some markets, depending on how long you’ve been in the home, it might be financially beneficial to hold onto the house for longer.
4. Rent the House and Become Co-Landlords
In markets like New York and San Francisco where rents are sky-high (the average rent in Manhattan, for example, is $4,068 a month), it may be possible to rent out the house and make enough to cover both partners’ new rents. This path may sound unusual, but it can work to both partners’ advantage.
“It’s good to consider all of the options and be creative, rather than just think, ‘We have to move out of the house,’” says Green. “If they’re willing to consider other possibilities, it can benefit them and make more business sense.”
Of course, you have to be able to work together, and there’s a lot to figure out before you go into business with your ex.
You should agree on who will be in charge of scheduling maintenance on the home, who will paying for repairs, who will find and vet new tenants, how you’re splitting the payments for the mortgage, taxes, and insurance, and what happens if one of you decides you want to sell.
“I always recommend that they include an agreement that either person can compel a sale,” says Green. Usually, the other partner will be given the right of first refusal, and 60-90 days to come up with the money to buy out the partner who wants to sell.
That way, if your finances change, one person wants to move, or for any reason either person feels that it’s not working, there’s always an out. Often, there will also be an end date to the agreement: after the kids graduate, for example, both partners agree to sell the house.
Things to Consider:
- Would you and your former spouse make good business partners?
- Would your housing market allow an arrangement like this to be profitable?
- Are you willing to be a landlord?
- Again, renting out your house presents the issue of losing one of your capital gains tax exemptions. Speaking with a tax pro, financial planner, and real estate agent would be a good idea before embarking on a co-landlord arrangement.
5. “Nesting” to Keep the Kids at Home
Nesting is another option for parents who want to keep their kids in the house, either for a few years to give them time to adjust, or until they graduate and move out.
The way it works is that the children stay in the family home, and the parents take turns living there when they have custody.
“That puts the burden of moving back and forth between homes on the parents who decided to divorce instead of on the children, who didn’t get a say in the matter,” says Green.
Ideally each partner would have their own apartment to live in when not in the home, though Green says she has seen clients attempt to share the other property, too, though not always successfully.
“One couple came back into mediation after a year and a half with more issues than ever. All the domestic issues that had led to the divorce were even worse when they were sharing a studio,” she says.
Though three housing payments can be burdensome, especially in expensive areas, she recommends anyone considering nesting long term should find separate homes for the off-duty times.
Generally, nesting arrangements have a fixed end date when the divorcing couple will then sell the house, as well as a way for either person to terminate the agreement if they feel it’s no longer working.
While nesting takes more cooperation than other scenarios, it can work for people who are co-parenting amicably. “It has a certain fairness for the children,” explains Green.
Things to consider:
- Can you afford three housing payments?
- Can you share space equitably?
- It would be difficult for either person to remarry until the agreement ends. You also face the issue of slicing your the capital gains tax exemption in half.
6. One Person Becomes a Tenant
If the home in question is a multi-family home, with one space for the owners and an additional rental apartment, mother-in-law suite, Airbnb-like unit, or casita, one spouse could choose to move into the rental space.
Of course, this setup only works if you have a rental space, but that’s not an uncommon way for families in expensive cities to make homeownership possible—the rental income makes the house more affordable.
Couples choose this option because they are co-parenting and both parents want to be close to the kids, or because it’s financially worthwhile to wait a few years to sell the home.
Like nesting or co-landlording, this arrangement generally has a fixed end date when both parties agree to sell and split the profits.
Things to Consider:
- The person living in the smaller space can begin to feel slighted, especially if they are paying half of the mortgage.
- There can be privacy issues with exes sharing a single building, especially as they move on to other partners.
- And again, there’s the question of the capital gains tax exemption.
Before You Decide Who Gets the House in a Divorce, Think About…
- Financials. “Usually when people are moving from one house to two, it’s going to be more expensive,” says Green. Divorce itself is pricey, costing an average of $5,000 for a mediated divorce and $15,000-$30,000 for a litigated one. Be realistic about what both partners can afford when you’re deciding what to do. Also, talk to a financial planner to so you’re making choices that are the best for your long-term financial health.
- Emotions. How emotionally attached to the house are you? Does one partner want to stay more than the other?
- Children. If you have children together, what’s best for them? Studies show children with divorced parents living in two separate homes are more flexible, adaptable, and organized. But often the process is difficult and traumatizing.
- How will you reach a divorce agreement? If you are getting a mediated divorce, the process will generally be more cooperative (and less expensive). With a litigated divorce, you will pay more, and the environment is often combative. Whichever way you go, make sure you talk to your lawyer or mediator. You don’t want to get blindsided, especially if your separation is not amicable.
- Laws. Every state has different rules for how to divide property in a divorce. Some states allow no-fault divorce, while others don’t. Some will default to splitting everything evenly while others won’t. Be sure to understand how the laws in your state work before making any decisions.
As you can see, there is no simple answer to the question of who gets the house in a divorce. But with the help of financial, legal, and real estate professionals, you can find the best option for you and your family.
Remember that while this time is emotional, stressful, and often difficult, you are moving on to the next phase of your life. Plan so that when you are looking back in 10 years, you will feel happy that you made smart choices for your financial and emotional well-being.
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