Vacation Homes in Divorce: An Asset or a Liability?

June 1, 2014
Written by Lynne C. Halem

The marital home may not be the only real estate that requires consideration at 
the time of divorce. What to do with the family vacation home or homes is a frequently asked question, one that may not produce ready answers.

Some couples own timeshares, which they consider the family “vacation spot.”  When these real estate investments are actually used, or exchanged for other vacation destinations, they often become a meaningful asset to the family. In other situations, the timeshare goes virtually unused, building up service, membership, and even mortgage fees that may go unpaid for months or years.  Over time this type of real estate investment has decreased in value, making the sale of timeshares a difficult undertaking.  Couples often relinquish them in exchange for outstanding debt on the property or try to sell them for pennies on the dollar. In summary: when regularly used, timeshares can provide a needed family retreat; when unused, they present a drain on revenue and often engender regret for dollars wasted.

Properties with little or no value pose more of a problem in the division of assets than real estate that will generate a profit upon sale. Vacation homes are easier than timeshares to sell, although the 2008 recession hit vacation properties hard.  As a result of the market correction, many families own homes in which their equity in the property is less than the outstanding mortgage balance, making it difficult to sell without outlays of cash to make up the monetary shortfall. Couples in this untenable position may agree to share usage and operating expenses until the property has a saleable value; or one spouse may agree to keep the property, receiving other assets or payments to offset the “under- water” real estate.

To Keep or Sell the Vacation Home: Not a Simple Question

• One party may argue that the vacation home has afforded the family the advantage of summer or winter vacations, or a new community of friends, and thus represents an irreplaceable part of the children’s family history.
• One spouse may feel that the home is too expensive to maintain and is simply not affordable, particularly if the family is going to maintain two principal homes; indeed, the sale of the vacation home may be a necessary means to generate funds for each spouse to have their  own residence.
• One party may argue that the vacation home has the added benefit of generating rental income, while the other feels burdened by the tasks involved with renting the property and may worry about the unpredictability of the rental income vis a vis the rising costs of upkeep.

Working Toward Compromise

Regardless of the arguments posed for keeping or selling the family’s vacation home, the couple is faced with the task of determining the disposition of this asset. In the final analysis, the parties have to weigh eachother’s needs, concerns, and priorities in conjunction with sources of income and budgetary requirements. The 
retention of a vacation property may be reduced to a dollar-and-sense solution: is this an 
asset that is affordable to the couple or to either spouse as an individual?

Let’s take a look at some of the choices made by divorcing couples in mediation:

• Families with more than one vacation home may elect for each spouse to retain one property, with the decision being based on preferences for the home and/or its affordability, or perhaps even its perceived value as an appreciating asset. In this kind of division, the value of the property is obtained and considered as part of the overall division of assets. Each spouse will own a designated piece of real estate and have control of its future disposition.
• Couples with one or more vacation property(ies) may decide to hold the properties jointly, sharing the costs and the usage of the property(ies). Often, usage schedules are devised with specified times and rules governing each party’s access to the property and responsibility for its expenses and oversight. The usage, and percentage ownership, may be equally divided or proportionately shared.
• Families may decide to sell the vacation property, with the net proceeds being used to purchase a home for the spouse who is vacating the marital home.  Alternatively, the proceeds  of a sale may be divided between the parties equally or proportionately. Naturally, sale proceeds can be used for many different purposes, including funding for children’s education, or as a source of funds to supplement the family’s budgetary shortfall, or for starting a business or returning to school, and so the list goes on.
• Another Family may decide to retain the property as a source of income. This solution may be particularly attractive if the property is “underwater” with more money owed on the mortgage than its sale value. Here the objective is to keep the property until it appreciates in value; which probably requires renting the property to generate in rental income to cover the taxes and operating costs of the property, thereby reducing out-of-pocket expenses needed to retain the property.
• Sometimes the couple may elect to have one party buyout the other party’s interest in the property, in cash or in exchange for other assets. Alternatively, buyouts may be structured over time, in installments.

Mediation: A Forum for Balancing Need and Priorities

In an effort to structure an agreement that is fair to all involved parties, it is especially important to evaluate the basis for each party’s preferences. The mediator takes an active role in helping couples explore their options and weigh the family’s needs and priorities. The mediator leads the couple in an analysis of the following considerations:

• The careful projection of the family’s budgetary needs after the divorce is an essential undertaking. An attachment to a vacation home, however strong, rarely takes priority over meeting the family’s basic living costs.
• Considering children’s preferences may help to weigh the “real” value of the property, although affordability cannot be ignored.
• Part and parcel of the mediation process is to consider each individual’s thoughts, feelings, and priorities in the context of actual moneys available and projected changes, if any, now and in the years to come.
• A couple may decide to stretch their finances in the present in order to retain a vacation property because they are anticipating a reduction in other expenses or an increase in sources of income in the future.

In mediation, couples need to view the entire picture, currently and in anticipation of future changes. Stepping outside the here-and-now helps the parties to fashion an agreement that is neither shortsighted nor overly optimistic; an agreement that makes sense not only at the time of divorce, but also in the years to come.

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