Can I Keep the House in My Divorce?

One of the number one concerns most clients bring during their divorce is: “what can we do with the house?” Second to issues surrounding the kids, the home is typically the most emotionally-loaded decision. As I, Morgan, navigated my own divorce – packing up and leaving a home I thought I’d spend 20 years in was one of the heaviest moments of the process. As I walk through the divorce process alongside clients and their attorney teams, the following information is just a starting point in thinking about how to proceed with the marital home.

How is the Family Home Treated in Divorce?

In most cases, the family home is considered marital property, which means it is subject to division in a divorce. The principle of equitable distribution is used in most states, which requires a fair (though not necessarily equal) division of assets. Some states, like California, follow community property laws, meaning that any property acquired during the marriage is owned equally by both spouses, regardless of whose name is on the deed. This is important because even if only one spouse’s name is on the mortgage, the house may still be considered a shared asset.

However, there are exceptions depending on the nature of the property. If the house was owned before the marriage, it may be considered separate property, which could give the owner a stronger argument to keep it. Additionally, the appreciation in the value of the property during the marriage might still be considered marital property, even if the home itself wasn’t.

Can You Afford to Keep the House?

Even if the court allows you to keep the family home, a significant financial question remains: can you afford it on your own? This includes the mortgage, property taxes, maintenance, utilities, insurance, and any other associated costs.

After a divorce, your income is likely to change. You may have a smaller household income, especially if you are the primary caregiver of children and your spouse was the main breadwinner. If you are relying on alimony or child support, it is crucial to calculate whether these payments will be sufficient to cover the home-related expenses.

Mortgage lenders also assess your ability to pay when refinancing. To refinance the home and remove your ex-spouse’s name from the mortgage, you will need to prove that you have enough income to meet the monthly mortgage payments. This may require a solid credit score, a stable income, and a debt-to-income ratio that meets the lender’s guidelines.

In some cases, you may decide that keeping the house is simply too financially overwhelming. If you are unable to make the payments or refinance the mortgage, you may need to consider selling the house.

Equity and the Sale of the Home

The equity in the home is another factor to consider. Equity is the difference between the current market value of the property and the outstanding mortgage balance. If you and your spouse decide to sell the home, the proceeds will be divided based on the agreement or the court’s ruling. Typically, the proceeds are divided in the same way as other marital assets, but this may depend on the financial circumstances and agreements made during the divorce proceedings.

If you decide to keep the house but your spouse wants their share of the equity, you may need to buy them out. This can be done by refinancing the mortgage and paying your spouse for their portion of the equity. It’s important to have an accurate home appraisal to determine the property’s current value and calculate the equity.

However, if neither party can afford the buyout or mortgage, selling the house might be the best option for both individuals to move forward financially.

The Impact of Divorce on Your Taxes

Divorce can have several tax implications, especially if you are keeping the home. If you sell the house, you may qualify for capital gains exclusions, meaning you don’t have to pay taxes on up to $250,000 of profit ($500,000 for married couples) if you meet the requirements. However, you must have lived in the home for at least two of the last five years to qualify for the exclusion. If you decide to keep the house, you will be responsible for property taxes, and the new property tax rates after divorce could differ from the rates you were paying together.

Additionally, if the house is jointly owned, you and your ex-spouse will need to decide how to handle these tax responsibilities moving forward.

Other Considerations for Keeping the House

Emotional attachment is a big factor when it comes to the family home. You may feel strongly about staying in the house for sentimental reasons or for the sake of your children, but it’s important to consider how this decision impacts your long-term financial stability. A home that’s too expensive to maintain or that requires major repairs can be a financial burden. It may make sense to sell the house, split the proceeds, and use the money to find a more affordable living arrangement.

Another consideration is how your decision affects your children. In some cases, a parent may be awarded the family home to provide stability for the children, especially if they are young. However, the ability to afford the home is still a key factor in determining if it’s a sustainable decision.

Seek Professional Advice

When it comes to dividing assets, especially the family home, it is important to partner with both a financial advisor specializing in divorce and a divorce attorney. They can help you assess the feasibility of keeping the home, the tax consequences, and the best way to manage your finances after the divorce. Additionally, a mediator or financial neutral can help facilitate discussions about the home and other assets to help you reach a fair and informed decision.

Whether or not you can keep the house in your divorce largely depends on the financial and legal aspects of your situation. While you may have the option to keep the home, it’s important to fully understand the financial implications, including mortgage payments, taxes, and potential equity buyouts. By working with professionals before the finalization of the divorce, you can explore more creative ways to continue living in the home other than only refinancing or selling.

For more information, check out these resources on divorce and asset division:

• Nolo’s Guide to Divorce
• LegalZoom’s Divorce Resource Center
• Bankrate’s Guide to Home Equity After Divorce