In the event of divorce, issues often arise with regard to the marital residence. In many cases, one spouse wants to keep the marital residence and must buy out the other, which can be accomplished by refinancing the existing mortgage and placing the new mortgage in the sole name of the spouse who is keeping the home. In other cases, the parties must sell the property either because neither spouse wants to stay in the home or because the cost of maintaining two homes is impracticable.
In both of these instances, issues will likely arise. For example, what happens if the house won’t sell? Absent an agreement between the parties, the court may ultimately force and oversee the sale of the property, regardless of the parties’ wishes, or a court could order that the house be put up for auction. In either scenario, the homeowners may take a big hit on the sale price. In instances when a party tries to refinance the home in order to buy the other party out, it may be difficult to get the bank to allow the mortgage refinance, particularly when one party is not working or there is not sufficient equity in the house to justify the refinance.
Alternately, the parties may agree that although only one of them will continue to reside in the home, it is in their families’ best interest that they continue to jointly own the home until a date certain, such as a child’s graduation. In those cases, the agreement should set forth a process the parties will follow when the time is ripe so as to avoid future disagreements over issues such as how they will select a broker, listing price and future reductions.
If you find yourself in any of these situations, you should certainly consult with a divorce lawyer, as well as an accountant and real estate professional, as such maneuvers will have both legal and tax ramifications. Careful thought and consideration should be given to issues such as which party will take the deductions for the payment of mortgage interest or real estate taxes; how to allocate the cost of major repairs (ie: a new roof or air-conditioner); how should the home be titled post-divorce; what happens if one spouse dies before the house is sold or refinanced; and liability considerations since the bank can and will pursue both parties under the mortgage in the event of a default.
While joint ownership post-divorce is often the least favored option due to the complexity in drafting and the corresponding liability, if two divorcing spouses can work together, and if done right, this can be a very viable option to preserve equity, protect each other from a down housing market and work together for the best interest of both parties. Regardless of which situation you find yourself in, please work carefully with your divorce lawyer to ensure that your document is carefully drafted so as to prevent future misunderstandings.