We’re really thankful for a guest post by a good friend of Chicago Family Law Group, Kate McClelland, a Chicago real estate broker. The simple reality is that a home is nearly always the most valuable asset of a marriage and you must handle the home right when going through a divorce.
The decision to divorce comes when all other options fail for a couple. While divorce is an emotionally excruciating move in life, there are several other aspects associated with the separation that you need to look into.
What to do with the marital home is a giant question in front of the divorcees. Since this is a challenging and tricky decision, you need to consider every option. A number of choices and implications will come up that are going to affect you and your former partner financially and emotionally.
3 Options for Your Divorced Home
Just like separating after a divorce, parting with your home you love is a rough time. Not that it can compare to breaking up with your spouse. Nothing can compare to that, but parting with your house is still tough.
One important question that you and your ex-spouse must address quickly is ‘what are you guys going to do with the house?’. If you are leaning toward selling considering the advice of attorneys, financial counselors, therapists and realtors is a smart thing to do. Don’t rush to sell it and cost yourself money. Don’t settle with your spouse as soon as you can and cost yourself money. Think it through.
All of those figures are going to offer a few different points of view, so it’s worth talking about all of those different factors and all the choices you will run into. Even though it may seem like there a few choices, there are only three realistically.
First, retain the house leaving the title and mortgage as they are. Someone would still have to move out, but if you have kids this could make sense.
Second, transfer the title and mortgage to either you or your ex-partner. This would require a buyout of some type, in the majority of circumstances.
Third, sell the home together and move on to a new place. There are pros and cons to each of these decisions. You have to consider them each.
I can’t stress enough that rushed decisions could cost you big time. Start off by seeing if any of you would want to keep the home or can afford to not sell it. As said before, children and schools are going to be a big factor in your choices.
If you aren’t comfortable staying in the house, selling is the only option on the table. If you have kids, child support may come into play. So that makes maintaining two houses even tougher to imagine. Still, it is not uncommon to see families holding on to a house and paying separate mortgages.
Adding one more payment to your present one can be an impossible task. Try to make your transition as structured and smooth as possible.
Remember that we are all working with a future that is not certain. Though a positive attitude to life is important, you should consider what is possible and feasible. That way you can safeguard your interests and financial safety in the long run.
Selling the house
Most industry experts agree that selling the home is the best viable solution for divorcing couples. This is often the best option. It addresses and takes care of several complicated issues. It also will alleviate a lot of the friction once it is over.
Once you have agreed to sell your home at the time of the divorce, there are a few things that should guide you through the process. In the first place, understand that when you are already undergoing a rough phase of your life, it’s not a good time to take on the additional burden of selling the home yourself. It’s overwhelming and could lead to rushed and clouded choices.
Do some good research to find the right agent who can understand you while helping sell the house fast and for a reasonable price. A real estate professional will be able to give you a suggested listing price based on research showing current market value. Listen to her. Starting off with the wrong price in your listing will set you back.
Staging the house can be a tough job while selling a home. You need to decide which minor repairs and improvements need to be done.
If you have already left the property, then you can entrust the responsibility of staging the home to the agent. Cleaning the home, removing clutter, clearing the extra furniture, making some fine tunings are all some tough jobs, and if one partner is doing all this, then the other might think of compensating them adequately for this effort.
Reviewing the offers received is the combined job of the divorcing partners. While both of you can benefit from the advice given by the agent, and should head it, ultimately you both have to agree on the details of offers and contracts.
With choosing to sell the house, you might again land on some crucial questions. Whether to do it before or after the divorce? Whether to tell the buyers about their divorce status or not? Several lawyers and counselors will stress on the possibility of benefiting from capital gains if the property is sold before divorce.
It will all depend on the specific situation that you have in front of you. Once the sale of the home is decided and there is an agreement on what happens with the sale and who is to pay for what, the best thing would be to leave one of the partners to deal with the process.
The final and the most important thing in selling the house is to divide the profits. You need to pay off all the obligations of the house and also settle whatever other payments and commissions you have agreed upon.
Some divorcing couples decide to co-own the house to let their children live there till they get older and sell the house after that. There are some pros and cons to such a decision.
Any failure to make mortgage payments can equally show up on the credit scores of both the partners. It is also necessary to decide the ways of allocating the mortgages, keep up with the expenses and decide who would benefit from the mortgage interest deduction.
If one spouse can be allowed to benefit from that, the other partner can be compensated adequately through some other financial means.
Co-ownership will also require lingering involvement with one another. Sometimes when the transfers during divorce are not taxable, the co-ownership agreement prevents such benefits.
The arrangement of co-ownership must be included in the decree of divorce or, accompanied by a court order. While they continue as co-owners, it is also essential that they make contingency plans to cover the death of one of the partners.
If one partner really wants to retain the property for himself or herself, the option of buying out the other partner’s equity comes into the picture.
In this situation, one of the worst decisions for one partner could be to transfer the title to the other while still being committed to pay the loans. This is something that will create lingering stress and heartache.
Though this could be one of the remote options, there are certainly ways to disown the legal and financial ties to the transferring owner while giving the co-owner the sole right to the title.
This can happen through the right kind of refinancing arrangement where an entirely new loan is offered in replacement of the existing loan. However, the fact remains that the co-owner must now be able to qualify for the loan.
In some cases, the ex-spouse willing to keep the property might want to sell the equity in the house for other jointly owned assets. Under such arrangements, a fixed amount needs to be assigned to all the assets put together. After this, the parties can mutually agree on an equitable division or appeal to the court to direct the proceedings.
However, in most cases, the divorcing partners will have only a few valuable assets to divide with the house being the major one. Therefore, how the house is settled is a crucial decision with implications for both the parties.
If the divorce goes to trial, the issue of home assumes the secondary importance. When there are no equities to divide and the divorcing partners defend their rights over the home strongly, the situation must be approached objectively.
Unfortunately, sometimes a home does not have any equity and it is not an asset but only a liability. This happens when the current mortgage is greater than the market value and is called being ‘underwater’.
Under such circumstances, the best option would be to liquidate the property and settle things as painlessly as possible. This means shifting to a short sale of the house.
If it is feasible for one spouse to buy out the other, and there is substantial equity in the property, that is a good option.
Keeping it for kids or other options
The modern age scenarios are changing drastically. An increasing number of couples resort to creative solutions because of their children.
After splitting, they wish to keep their children in a stable atmosphere, rather than pulling their roots from the home while they are growing up, and they look for a creative way to make that happen.
This could mean waiting until the children are a particular age and then selling the house. Some couples move in and share the house while ending their marriage, which is also called nesting. This is a sort of amicable breakup.
Such arrangements can have less emotional influences on the children, in addition to having minimal financial implications on the separating partners. Such conditions might also be forced if the couple is already upside down on their mortgage.
This could be a tough decision considering the several pitfalls, and this cannot go on for an indefinite length of time.
Why selling is often the best option
Once the decision is made to divorce, most couples want to proceed with dividing assets and finalizing the split. This can lead to arguments over who gets what and what things are worth. If you are unable to come to an agreement, and the attorneys and mediators find it unsuccessful to work with you, you will have to go through court proceedings.
Liquidating the property and dividing the proceeds as it is appropriate often solves the issue more peacefully with least friction and dissension. It also eliminates the potential stress of missed mortgage payments in the future due to changes in circumstances, or failure of an ex to make payments they have been ordered to make. It happens. They might find it unaffordable at a point in time. Since circumstances can always change, you need to be realistic. Employed professionals are at the risk of being laid off. Self-employed are at the risk of swings in income.
Several reasons might justify or motivate you to keep the home. However, know that things have significantly changed these days.
While homes are a symbol of security at some point in time, they could also turn into nuisance under some circumstances. There is the loan payment, needing to pay the insurance and property taxes, the escalating tax payments during the escalation of the property value and so on.
You also will need to set aside something for home maintenance. Other issues that you may have never thought of while living with the spouse could crop up now, including what to do with the yard, how to maintain the pool and how to pay for the utilities of the home. While planning to keep the home, you must weigh each of these aspects and consider what they would cost.
Therefore, at times, a smaller and newer home can meet your real needs more effectively, while also freeing you from the headaches and memories associated with the marital home.
Condominiums are getting more popular among different kinds of owners. In this system, the homeowners’ association takes care of the hassles associated with the maintenance issues, and a lot of expenses are shared among the association members.
During times of transition, such arrangements can offer a big relief.
When you are married and sell a home, you are going to benefit from the capital gains tax ramifications. Check out your local property tax guidelines to find out.
Often divorcing couples decide that selling the home is the best course of action for them, and working with a patient, knowledgeable real estate professional can help make the journey as painless as possible.