Divorce and the Marital Home

By October 18, 2016Divorce, Marital Home
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In divorce, the property most couples spend the most time arguing about is the marital home. For many couples, the marital home is their most significant asset; in addition, it likely carries a great deal of sentimental value. Newton’s first law of motion describes inertia, and that applies in divorce as well – neither party really wants to move.

So, is the marital home worth all the arguing? Is it worth keeping?

Typically, the court has two options regarding the marital home: award it outright to one of the parties, or order the house sold and divide the proceeds.

In order for one party to receive the house, that party must have the financial ability to pay for it – mortgage, taxes, insurance, upkeep. Many people make the mistake of fighting to keep the house only to find that they really cannot afford it. While in the short term it may seem best for the children to stay in a familiar place, to save money on moving, or avoid a bad real estate market, trying to hold onto a property that only pushes one into financial straits makes little sense. On the other hand, if a party can afford to keep the house, all of those great inertia reasons favor staying, and it may even be the more economical choice (mortgage rates may be higher, new house might even be more expensive).

A good way to think about whether to keep the marital home is to consider what percentage of your gross marital income your current mortgage is, and compare that to what percentage that same mortgage is of your individual gross income. If the two stay fairly close, that means you have been the principal wage earner and could manage the mortgage. If, however, it more than doubles, it means you could only pay the mortgage with two combined incomes and it would be financially unwise or impossible to keep the house post-divorce.

If the court finds that one party and the children should remain in the house and lacks the financial resources to establish a suitable home, the court may give the house to that party and order the other party to pay maintenance in sufficient amount to cover the mortgage and upkeep. That is one option, but not as common because of the problems related to refinancing the home by the party with low income. Also, the earning party would still need to recover a share of the equity in the house, and it may not be possible for the low earning spouse to do so.

Selling the marital home can have advantages. First, it gives each party a fresh start and equity to do so. Downsizing may make sense – the more money that goes into the house, the less money available to put away for retirement or college or the basics of everyday living. Finally, since one party has to move, the idea that the children will not have to adjust to a new living space is less persuasive.

It is possible to work out arrangements so that the children can stay in the house with the lesser earning spouse for a period of years and then the house is sold. The easiest way to do this would be to put the house into a trust with the proceeds of the sale distributed however the parties or the court deems appropriate.

In the end, parties should avoid fighting for the house at the expense of other marital assets that may be more valuable long term, or worse, fighting just to hold on because of inertia, only to have financial disaster force a move post-divorce.

If you have questions about the marital home and divorce, contact us – we can help.