Dividing the marital residence in a divorce is complicated by the parties’ sentimental attachment to the house and by the logistical hurdles people have to jump through when dealing with the house. This blog is the second of three discussing issues to consider when deciding what to do with the marital residence. This particular blog discusses what to do if one spouse is going to keep the marital residence after the divorce. The first in the series discussed issues to consider if you and your spouse are selling the marital residence. The third will discuss issues to consider when both parties are going to keep the house and share it after the divorce is final.
Generally, the court has the discretion to make any decision it believes is fair to the parties. If the parties have children, the court is allowed to consider how allocating the home to one of the parents will affect the children, so if one parent will have the children the majority of the time, the court may decide to award the house to that parent so the children can stay in it. The court may decide to award the house to one of the parties if it helps the children stay in their school district.
In addition, the court may also consider what other housing options the parties have. If they have a rental property that one of them could occupy instead of using it as a rental, that is something the court can consider. The court may also consider whether the party who wants to keep the home will actually live in it or will use it as a rental property. If the parties have other options for places to live, then it might make sense to allow one party to keep the home and use it as a source of income, especially if that spouse has been out of the workforce during the marriage.
If the court decides not to award the house to one of the parties, it usually tries to protect the party who does not get the house by ordering the other party to refinance the mortgage and remove the other spouse’s name from the debt. That means that the spouse who keeps the house must be able to take on the debt and expenses associated with the house.
If you are considering taking on that responsibility, it is a good idea to work with a lender that is comfortable helping people going through a divorce as they may be more willing to work with you to qualify you for the mortgage. Parties should also be aware of a federal statute (the Garn-St. Germain Depository Institutions Act) that can help a spouse assume the existing mortgage terms (so long as they would qualify for the mortgage on their own). Many homeowners right now would prefer not to refinance their existing mortgage because their existing mortgage has a much lower interest rate than anything they might get on a new mortgage. If the homeowner can convince the lender to follow the Garn-St. Germain Depository Institutions Act, then the homeowner can take over the existing mortgage at the existing rate, which can save quite a bit of money.
In most cases, the permanent orders allow the spouse a specific window of time in which to refinance. The length of that window, however, varies quite a bit from case to case. In some circumstances, the spouse may only have a few months to remove the other party’s name from the title. In other cases, the court may give the spouse six months, a year, or longer, particularly if the spouse who is keeping the home has not worked for some time or if a longer refinance deadline is necessary to make sure the children can stay in the home until some milestone is reached. It is a good idea to include language indemnifying the other spouse during the time that their name is still attached to the liability for the home and to consider language explaining what should happen if one spouse fails to make a payment when they are supposed to. Should the house immediately be sold? Does the other spouse have an option to make the payment to avoid damage to their credit and then be reimbursed? The answers to these questions will depend on the particular circumstances of each case.
If the spouse currently occupying the home is not the one who will keep the house after the divorce, then the parties also need deadlines for when the other spouse has to vacate the house and what items they are allowed to take with them when they leave. Regardless of who currently occupies the house, it is also a good idea to have clear language regarding when the spouse who is keeping the house has the exclusive right to occupy the house so that the other spouse can no longer enter the home.
The parties will also need language regarding the tax implications of the home. If done correctly, the transfer of the home from one party to the other as part of the divorce should not trigger any immediate capital gains, but the spouse keeping the house may need to pay capital gains in the future if they ever sell the home, and the permanent orders should include language addressing that issue. The parties may also need agreements regarding who gets to claim the various deductions associated with the home during the tax year that the parties’ divorce was finalized.
Finally, the parties may need to execute either a quit claim deed or a warranty deed to transfer title to the appropriate party after the divorce. The timing of that deed will often depend on when the mortgage will be refinanced.
If you have more questions regarding the marital residence, please consider scheduling a consult with one of our intake attorneys at The Harris Law Firm or check out Part 1 or Part 3 of this three-part blog.