Across the United States, 800,000 divorces take place each year. While this is a stressful phase, one also has to consider dividing real estate in a divorce.
Marital property division can be a particularly severe step because the property that was purchased together often makes the foundation of a relationship. Furthermore, a home promotes a feeling of stability and security. So it is tough to part with it.
During a divorce, the division of home can occur in three main ways, even while divorce laws on property vary by state.
- Both parties sell the property and split the equity.
- A buyout occurs, wherein one party sells his share of the property to the other.
- The sale is deferred to a later date.
Let us consider each of the three arrangements for how to split a house in the event of a divorce:
- Selling the property and splitting the equity
The amount derived from the sale of a home is equitably divided between the two parties. It can help cover the down payment for a new home or help an ex out with relocation. Either partner can start with a fresh, clean slate.
This arrangement is feasible and easy to make if the home is marital property. Nevertheless, if one of the partners had purchased the house before they got married, this arrangement is very likely to be unavailable.
Most US states are Common Law Property states. This implies that if a married person buys a property individually, the property is owned whole and sole by that person unless the title and deed are in both partners’ names.
Louisiana, Wisconsin, Texas, Washington, Idaho, Nevada, New Mexico, Arizona, and Florida are Community Property states. As such, all assets or debts acquired during the marriage belong to both spouses equally.
Similarly, the assets acquired by one spouse before the marriage are considered separate property.
A judge can issue an order to the divorcing couple to sell their house to cover expenses such as outstanding debts. In this case, the couple is left with a lesser amount for equitable distribution.
There are numerous cases in which a couple shares only a percentage of the equity derived from the sale of their home. One such instance is when a partner owned a property before he or she got married, but both partners paid for renovations. In this case, it is unlikely to be a fifty-fifty deal.
If home sale proceeds make up a part of your divorce settlement, the divorce may be difficult to finalize before selling the house.
Let’s look at a few things to consider when taking this route:
- A home should be seen as more than a physical structure. It is one of your financial assets. In the event of a divorce, consider the bigger picture when deciding who gets money for what. How one gets to the resolution is up to them.
- It is good to get some sound financial advice in the form of a professional home appraisal. It is an effective way to learn the market value of the home.
- Go for a legal consultation with a divorce attorney. You can discuss available assets, debts owed, and how to arrive at a mutually acceptable solution. You might wonder how a house is divided or how to separate property. For instance, if one needs to split a quarter of a recently renovated bedroom, a compromise can be reached by trading other assets. It could be money from a retirement fund.
- You should consult with a real estate attorney or a real estate agent. They will create a preliminary closing statement for you. Similarly, you’d have a better idea regarding what amount will be available for division when selling a house at a specific price. Selling a home comes with additional costs, such as HOA transfer fees and title insurance. You must decide who pays for these charges in case a divorce takes place.
It is essential to have a high degree of clarity regarding who will pay for what and how everything will be distributed.
- One party buying out the other
A buyout frequently goes in line with refinancing the original mortgage loan. The spouse who intends to buy the home takes a new loan. This loan is typically enough for the individual to pay off the previous loan and give pending dues to their spouse.
An important point in such circumstances is whether the spouse who will keep the house can refinance it. Speaking to a mortgage lender early on can render an influence over the options available to you. If the spouse keeping the house used to work part-time, or not at all, a lender might deny a loan request.
In numerous cases, when a couple plans for a divorce, one of the spouses decides to buy the other one out. But if they realize this option is too difficult or impossible upon taking a mortgage lender’s advice, they may choose to sell the property.
Let us look at a few considerations to keep in mind for this route:
- Speak to a mortgage lender about whether refinancing is a feasible alternative for the ex who will keep the house.
- It is preferable to take the aid of an agent who specializes in divorce-related matters. A divorce specialist will be in the best position to negotiate over property division laws and handle complexities such as emotional conflict and communication issues.
- The spouse who is moving out should speak to a real estate agent. It will give them a fair idea about what they can afford.
- A divorce attorney or real estate attorney reviewing the agreement will provide you with clarity on how each party will be paid.
Some typical cases arise out of such circumstances. Let us suppose that a couple chooses to divorce amicably wherein one spouse buys out the other. If the spouse who gets the house decides to sell the house later, the court may determine that the other spouse is owed additional money.
These are complex matters, so financial transactions should be made to be legal. Otherwise, the spouse who received money may have to sign a waiver stating as such.
- Own the house for the time being, but sell it later
This is an unusual scenario. It occurs when both parties mutually decide that they will sell their home in the future because if they sell it now, it will result in an upheaval.
If the couple has children, they may decide to sell the house after they have finished their schooling. This ensures that the home’s selling does not affect the children and makes the transition more natural. Putting the settlement into paperwork will add to its value.
An essential point to keep in mind in such circumstances is that the spouse who pays the mortgage should not miss any payments.
Let us look at a couple more things to consider for this route:
- Get in touch with an attorney. They can specifically outline how the mortgage will be handled when the property is in both partners’ names, involving the right time to remove your partner from the mortgage. In several cases, this is accomplished by changing the deed to a quitclaim deed. But the couple has to make sure that it is done right.
- You may require the aid of a tax specialist who specializes in divorce-related matters. They will be in the best position to explain the impact that capital gain taxes and mortgage interest will render, whether selling your home before the divorce or later.
What is a real property in a divorce? It can include a farmhouse or vacation home that you own, beyond your primary house. Division procedures for all real estate assets are on the same lines when a couple chooses to get divorced.
When decided on how to divide property, consider professional aid. Professionals who assist you through divorce-related matters don’t have an emotional stake over any of the issues, so they are better positioned to help you out. And remember that after closing this chapter, you can start a new chapter in life.