Other than children, one of the most emotionally charged topics in divorce is what to do with the home. If you co-own a home, there are several key considerations when deciding if someone wants to keep the home or if it will go on the market.
A family law attorney and realtor both shared what they’ve seen and experienced when helping divorcing couples decide what to do with their home.
Know the legal and financial factors involved in selling the house
Aside from emotional ties to the home, there are serious financial and legal factors involved with either keeping or selling a home.
“The first thing a divorcing couple needs to do is have a conversation with their attorneys,” said Jennifer Stanbrough, realtor with Jen Stanbrough Real Estate and RE/MAX Precision. Stanbrough said the couple needs to better understand how other factors of the divorce may affect each party’s post-divorce budget before they can make a realistic decision on the house.
Stanbrough said the way she can help earlier in the decision-making process is by providing a market analysis to discuss with their attorneys. This can be used for determining equity or debt that may need to be split in the divorce, what would be needed financially for one person to keep the house, etc. In any case, Stanbrough advises divorcing couples not to make final decisions on the house until they have a better understanding of its current value and what their individual finances will look like after the divorce.
Mediator and attorney Kristen Boldt agrees. As a mediator at Harmony Law, she often sees couples before they even file for divorce to help them explore decisions as a neutral facilitator. She can clarify the state law, what options may be, and bring up topics or solutions that the couple may not have thought of otherwise, saving time and attorney fees in the long run.
“The house conversation comes down to who can afford it,” said Boldt. If you had a mortgage based on two incomes, can just one person afford it? What will each person’s post-divorce budget be?
She said the decision shouldn’t just be based on whether the parents think it would be better for the kids to stay in the house.
“The kids just want mom and dad to be healthy and happy. If staying in a house that you can’t afford is going to stress you out, your kids will be living with a stressed parent, not a happy one.”
In Iowa, where Boldt practices, a house purchased together as a couple is considered marital property, and each person is entitled to equal parts of the home’s equity.
“But [the equity] payment doesn’t necessarily have to come from the sale of the home itself,” she said.
If one person keeps the home, they will also owe the other party half of the home’s equity upon the divorce. In the divorce agreement, the person keeping the home can use a retirement account, savings, or some other form of cash to pay off the equity owned to the other party.
“A big concern in the last year is that rates have gone so crazy,” Boldt added. “For a while, rates were low, and everyone got fantastic new mortgage rates. Now, people are refinancing, and rates are a lot higher.” So, an added consideration of keeping the house is whether they can afford to pay the mortgage on one income and at quite possibly a different rate.
Stanbrough said couples also need to know that in spousal right states like Iowa, if one person wants to purchase a new home and the divorce is not yet final, they are required to get their spouse’s signature on the new mortgage.
“That spouse’s financial information isn’t used to qualify for the loan, and they won’t be liable, but they do have to sign a mortgage acknowledging that the other spouse is taking a loan out for new property.”
That might not be an issue unless things get heated between the two. If there’s an argument between the divorcing couple, and that acknowledgment doesn’t get signed out of spite, the loan won’t close on the home.
“For that reason, the safest bet is for everyone to wait to purchase new homes until everything is finalized,” she added.
Make a deadline about selling the house in divorce agreements
Whether the decision is to keep or sell the home, timing of several things can have significant effects on outcomes, so it’s important to get specific about deadlines in divorce agreements.
For example, the volatility of a housing market can make waiting to sell more complicated and not always predictable. Stanbrough has worked with couples that decide to wait until the divorce was final to sell their home, and the divorce itself took so long that the home’s estimated value actually looked different by the time it went on the market.
“When I give a market analysis on a home, I’m going to give the best estimate I can for that day,” she said. But if the sellers wait too long to list it, the home’s value may look different by then. “Sometimes you’re hedging your bets on the market,” she added. If you decide to wait in that situation, you may want to set parameters around what that looks like.
If it’s agreed that one person will keep the house, they will have to refinance to remove the other party from the mortgage. When this is the case, Stanbrough said specific timelines in divorce documents need to outline when the refinance will happen.
“Otherwise, the other party is still liable on that debt, and that will affect whether they can buy another home.” Once the home has been refinanced, the party no longer living there also needs to deed the rights to the property over to the person who owns it. “It can get super complicated,” Stanbrough said. “These things all need to be taken into account in the overall decree.”
Consider selling the house as a business transaction
Divorce itself is highly emotional, so making decisions on the home with so many memories takes it to a whole different difficulty level.
“I know it’s hard, but try to regard it as a business transaction, and keep the whole picture in mind,” said Stanbrough.
Choosing whether to sell a home is one of the most emotional decisions of a divorce, and she said often one of the last items to get finalized.
“Selling [the home] is one of the final pieces, and what comes with that is often grief.”
Because emotions can interfere with clear decision making, Boldt has brought financial neutrals into her mediation sessions to help couples firmly grasp the longer-term financial impacts of selling or staying in a home.
“How is it going to feel? You’re still emotional and grieving the decision to divorce, so let’s paint the picture of what decisions will look like and feel like in day-to-day living,” Boldt explained.
Getting accurate and trustworthy information is also why Stanbrough said couples need to ensure that both their attorneys and the realtor understand the complexities of real estate transactions during divorce.
“Make sure you’re working with a team of people who you trust and are educated and experienced on the nuances of divorce and real estate property,” she said.
She’s worked with attorneys who don’t understand real estate and has cause issues with the details and timeline of a sale. At the same time, she said the real estate agent also needs to understand how to work with divorcing sellers who need to make decisions together, agree on timelines and may be much more emotional about the process than couples that are not divorcing during the sale.
Patience and communication are key to selling your house
It can be hard to imagine your life after divorce, much less what your life will look like a couple years after divorce. Stanbrough cautions that if a couple decides to hold off on selling for a period of time hoping the market will improve, and one person stays in the house until then, patience may wane on either side.
“Let’s say the couple agrees that the wife can stay in the house until it sells, but the husband is paying some or all of the mortgage until then. He’s going to be more motivated to get the house on the market because of the extra monthly expense for him,” she explained.
Especially if the market doesn’t improve, he may not want to hang on as long as the wife would.
“The wife isn’t in as big of a rush and may not be as excited to get the house listed. That can get tricky.”
Not to mention, time may also bring more people to the selling table. “Often times, not only are there the exes I’m working with, but also their new partners.” She said new partners or spouses often have their own opinions, and it’s not always welcome in the room.
Move forward with informed and creative decision-making
The bottom line is that deciding what to do with the home is not always a straight-forward decision, and there is not one right answer. In fact, both Boldt and Stanbrough said they have helped couples with creative solutions to some of the most difficult situations. The key is to make sure you understand all of the information and implications each choice presents. Then, you can make an educated decision and look forward to confidently moving on with your life.