The Marital Home: To Keep or Sell When Divorcing?

May 1, 2014
Written by Lynne C. Halem

The family home is rarely thought of simply as a piece of real estate.  This house, really the home, is the center of the family’s life. People remember the day the house was purchased, what their hopes and dreams were, and even their long term plans for the future.  Some view their home as the anchor of their children’s stability.  The house, they think, provides the children, and even themselves, with a sense of identity, with the continuity of community and friendships, with a reaffirmation of whom they are and from where they came.  As such, it is hard, particularly in divorce, to describe an asset as being comprised of land and a building with an identifiable value.  Clearly the house may well have an intrinsic value that extends far beyond its extrinsic worth as a piece of property.  Naturally, this is not true for all couples.  And that is one reason why divorce must not be handled as if one blueprint fits all couples.

Let us review the various options for the marital home which may be considered by divorcing couples:

At the outset, the value of the real estate is an important piece of information for all couples.  Even for individuals who wish to sell their home, it is necessary to consider how much money will be available upon the sale of the real estate.  Here the couple needs to consider the fair market value of the property, the broker’s or appraiser’s estimation of its actual sale value, the amount of any outstanding mortgages and/or liens against the property, estimation of any sale, fix up costs, and related taxes (e.g., capital gain taxes, sale taxes) and any other monetary considerations (e.g., repayment of a family loan advanced for the downpayment) that would impact the amount of money to be retained upon the sale of the house.

Armed with the information relating to the value of the real estate, the couple now begins to consider what, in fact, to do with the property.  In addition, it should be noted that individuals often elaborate on how moneys are to be distributed after sale.  For example, an individual may want recognition for an inheritance that was used to purchase the property or for the fact that he or she owned the property prior to the marriage or that his or her family helped to finance house renovations or for any other consideration that seems to be relevant to the negotiations pertinent to the disposition of net proceeds.

Scenario One: To Sell the House

Assume the parties agree that neither person  can afford to stay in the house, or that it is too large for a single parent or person, or that they both need the funds to purchase new housing, or that they wish to relocate, or even that they never liked the house and selling it is a good idea.  Whatever the reason, in this scenario, the couple needs to reach agreement on:

• Method of sale: by owner or brokered
• Selection of broker
• Establishment of the asking price, the anticipated sale price,  and perhaps even a “mandatory” sale price which would require that both parties accept a bona fide offer at the designated price, perhaps after a specified time period.  Time frame and price reduction should also be discussed, prior to listing the property for sale.
• Assignment of sale process tasks (e.g., repairs) and agreement on funding identified costs.
• Determining the date for placing the house on the market and responsibility for keeping the house in “show condition.”
• Agreement on how and by whom ongoing house expenses will be funded until sale (e.g., mortgage, utilities).
• Decisions surrounding occupancy of the home until sale: Who will reside in the house if couple does not continue to live together? Where will the other spouse live? Where and with which spouse will the children live?
• Specifications regarding house-related tax deductions until the sale of the property, and tax consequences, if any, resulting from the sale.
• Division of net sale proceeds, capital gain or loss, including consideration of any particular individual contributions to the purchase and/or existing value of the property.
• Distribution of sale proceeds if one spouse predeceases the sale of the property.

Part and parcel of the agreement to sell the house is a discussion of where each spouse and the children will live after the house is sold. These decisions are usually interconnected with custodial arrangements.  If the parents are to have shared custody, then they need to reside reasonably close to each other. Schooling choices for the children will affect the selection of towns.  Even for children attending private school, parents need to consider the  distance from home to school as a factor in the selection of communities.

Parenting decisions often affect the division of sale proceeds.  At times, couples agree that one party should have all or most of the proceeds.  They may feel that there should be a main house to be labeled as the children’s primary residence.  Alternatively, assets may be divided in such a way that the house proceeds are apportioned to one party and another asset, perhaps even of equal value, is apportioned to the other party.  The variations on how assets can be divided are too numerous to even attempt an overview.  Let it suffice to note that there are many, many ways to divvy up assets, only a few of which we are considering in this article.

Scenario Two: The House is Retained Under Joint Ownership

Here one spouse remains in the house, with or without the house being the children’s primary residence, but the other, non-occupant spouse, retains an ownership interest in the house. Here the couple needs to reach agreement on:

• How long will the house be retained jointly?  Is the sale date tied to a child-related date such as graduation from high school or college? What if the occupant spouse remarries or enters into a cohabitation arrangement?  Does that affect the ownership of the house, forcing a sale or a buyout by the occupant spouse?
• How will the house expenses be paid?  Will the occupant spouse be liable for all costs except, perhaps, major repairs?  If the latter, is there a dollar figure that constitutes the liability of the occupant, and do expenses which exceed this annual or per item cost constitute a shared expense?  Is the expense shared equally or proportionately?
• Are there provisions for buyout by either spouse?  If so, terms pertaining to the  pricing, timing of sale, and /or adjustments to the sale price must be outlined.
• How are proceeds divided upon sale?  Does the occupant spouse receive credit for pay down of mortgage principal or for the execution of repairs?

Scenario Three:  One Party Retains the House

Where one party retains the marital house, there maybe a buyout of the other party’s interest at or about the time of divorce.  The buyout is typically accompanied with refinancing a jointly-held mortgage such that the owner now holds the mortgage, releasing the other party from liability.

In other instances, the buyout is made in installments or delayed to a later agreed upon date, or even tied to an agreed upon event (e.g., graduation of a child).

All the same questions that relate to how the buyout price is actually calculated are once again of primary importance. Some couples include deductions for future events in their calculation of the buyout price (e.g., Title 5 costs, capital gains taxes, broker fees, sale stamps).  Others reduce the price by outstanding mortgage(s) only.  Naturally, at the outset the parties need to agree on the fair market value of the property.  If, however, the actually buyout is to take place some time in the future, the parties may or may not agree to freeze the value of the property.  Others agree to assess an interest factor for installment or delayed payment plans.  Once again, variations among couples are great and cannot be lumped into one category.

Other couples divide property such that each one keeps certain assets.  Many of the same questions pertain to this kind of division as to an actual buyout.  The parties need to know the fair market value of the property and the value of the assets for which the house is being traded.  Not infrequently, valuations are adjusted for present and /or future costs (actual and/or potential).  Decisions need to be made as to the timing of refinancing if the mortgage is held jointly.

Scenario Four: Exchanged Occupancy

Not as common as the other scenarios is the decision for each party to reside in the house for a set period of time.  Thus, party A lives in the house for, say, two years, and then moves out, with party B moving in.  At times, the party who is to move in later changes his or her mind and decides that he does not want to return to the house.  Again, the key is to anticipate these possibilities  for potential eventualities before the change of heart occurs.  Is the house then sold?  Does the other party have the right to stay in the house and, if so, for how long?  And, of course, what about costs and the rest of the very long list of questions we have detailed above.

Since mediation is a problem solving process, it provides the ideal forum for identifying and analyzing a variety of house-related scenarios.  Even parties who enter mediation with an agreed upon “house deal” need to address the ancillary questions related to their decision.  An agreement that will not come back to “haunt” the parties in the future includes the details and terms for anticipated and potential issues.  Attention to details early in the process saves time, money, and conflict in the future.  A skilled mediator knows the questions to ask, is able to facilitate the couple’s careful weighing of options, and finally, helps to balance the future implications for each party and for the family as a whole.

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