To SEll or Not To Sell (your HOme)

To sell, or not to sell…your home during a divorce.
 
If you are divorcing, and you share a home with your ex, there are many things to consider. For example, one party may want to stay in the home and not move or find a new place to live. This can only happen if:

• Option #1: The person who wants to stay in the home is able to refinance and get the other party off the mortgage loan,
• Option #2: Both parties agree to stay on the mortgage. 
  
  

However, there can be problems with each of these options.
 
Consider Option #1. Imagine the wife wants to stay in the marital home, but she does not make as much money as husband. If she is getting spousal support from the divorce, it could be added to her income to help (possibly) qualify her for a refinance independently and, therefore, remove husband from the mortgage loan. However, the husband is still entitled to his share of equity in the home, so the wife will still owe him his half of the home equity, just like it would be divided if the parties sold the property.

In this scenario, if the husband owes wife significant money for her portion of other community assets (retirement account, savings, etc.), he could use it to offset his equity in the home. To detail this example, if the wife is awarded $200,000 from husband's 401k and savings accounts, and the equity in the home just happens to be $400,00, Husband's portion of the equity in the home would be $200,000 – making the home equity exchange a wash (where neither party must pay the other out-of-pocket). But, if there aren't any other assets, how is the wife going to come up with $200,000 to buy out her soon-to-be-ex-husband’s equity, without selling the home??
 
Now Consider Option 2. Let’s say the wife does not qualify to refinance and take over the mortgage on her own, so the husband agrees to stay on the mortgage so she and the kids don't have to move. This leaves the husband jeopardizing his own ability to find a new residence. With his name still on the mortgage, he may not qualify to purchase another home. If his debt-to-income ratio is not capable of getting him approved for two large mortgages, it does not make sense for him to remain tied to the mortgage on the marital home.
 
These scenarios illustrate why, sometimes, the only workable option during a divorce is to sell the home. If you are in a situation like those described above, it’s never a bad idea to consult an experienced divorce lawyer, real estate agent, and/or financial planner to help you make decisions for your unique situation.
 
**Blog post content by J Castle Law attorney Kelly Kehm