Traditionally, the marital home and the retirement savings are the largest assets that most couples have, but the way we write divorce/separation agreements has changed over the years because of the declining values in the real estate market. Now, in divorce agreements, we not only address how the net equity (profit) will be divided at sale, but we also must address how, if there is a short sale or the house sells for less than the mortgage balance(s):
- Will there be sharing of the remaining mortgage balance after sale?
- Will the couple have to come up with more money if the house is sold but for less than the amount owed on the house?
These are some of the questions that need to be discussed during divorce mediation sessions. With my help, we will outline various options which are available to the couple.
When one spouse decides that they want to keep the house, perhaps buying out the other’s share or selling the house at a later date, i.e. the children graduating from high school. Based on my experience, I will explore with the couple what has worked and what doesn’t work when deciding on a plan to divide the assets. I ask questions like:
- If you are trading off the equity in the house for your interest in the spouse’s pension, can you really afford to maintain the home?
- Can you afford to pay the mortgage, taxes and home owner’s insurance with your income alone?
- Do you know how much it costs to maintain your home including the mortgage(s), utilities and other expenses?
- If both of your names are on the mortgage and there is a buy-out, does the house need to be refinanced?
My experience has been that $4,000 to $6,000 a month is pretty much what it takes to carry a home with a $200,000 mortgage. If you have a net monthly income in that amount, are you willing to spend it to maintain the home?
It is a reality now that homes are worth significantly less than they were a few years ago. If you sell and buy in the same market, it’s not so horrible because even though you are getting less for what you sell, you are paying less for what you buy.
During divorce mediation, couples often discuss a plans to maintain the home together as co-owners for a period of time even after divorce. If the couple elects to do this they need to address which expenses each is going to pay or how they will split the total expenses. Are you going to have a joint checking account that is dedicated to pay for the expenses for the house and if so, how are each of you going to contribute to that account? Or are you each going to pay the expenses separately?
If one of you lives in the house and the other maintains co-ownership, who is going to pay repairs? Will one of you pay for small repairs and are you going to share the cost of major repairs?
If you continue to own the marital home subsequent to divorce, while you may have owned the property by tenants by the entirety, after the divorce it will change to tenants in common which means each of you have a 50% interest in the house. When you sign the separation agreement, you usually give up your right to inheritance, so any joint asset such as the marital home, will no longer pass to the surviving spouse by operation of law. As tenants in common the survivor will have a 50% share in the house and the decedent’s estate will have a 50% share.
There are a lot of considerations when owning the marital home post divorce such as decisions on how to maintain the home, the level of repair and maintenance you would like to do. This is something that will be discussed thoroughly during the mediation process and I will explain all of your options before any decisions are made.
Prior to the economy taking a downturn there was a lot of equity in the marital home but now things have changed. Not only is there very little equity in the house, but some couples have been using the money in their retirement plans to pay the bills. One of them may be out of work and trying to get a job, so they no longer have as much financial flexibility to negotiate trade-offs like they used to. All of this has really changed the way we negotiate during the mediation process because there is so much less money to work with.
I know this sounds complicated and a bit overwhelming, but during the mediation process, I will walk you through all the options and based on my experience will share with you what I know works so that a couple doesn’t need to come back to mediation post divorce to resolve lingering issues.
In Part II, we will discuss the advantages and disadvantages of living together in the marital home after the divorce.