Perhaps the most common asset at the center of the storm of any divorce is the marital home – not only for sentimental reasons, but also for financial reasons. For many couples, the marital home represents their single biggest investment, and so each spouse will want the equity that goes with the house. But all homes, like all marriages, are not created equally, and it really depends on your personal situation whether to fight to keep the marital home.
The marital home is usually purchased by the couple during the marriage and so constitutes marital property subject to division. While the tendency is to split all assets equally, when it comes to the marital home, the courts have multiple issues to consider.
First, who paid the down payment on the house? If one spouse used funds acquired from before the marriage to make the down payment, it is possible the courts will allot that sum as the separate property of that spouse. However, if the other spouse can show that the down payment was meant to be shared as marital property, the courts may consider the down payment marital rather than separate property. Generally, the more commingling of funds that takes place, the harder it will be for a spouse to claim contributions to the house as separate property. The best way to protect that equity would be through a prenuptial or postnuptial agreement where the parties agree to designate the contribution the separate property of the contributing spouse.
Second, who made payments on the mortgage? While one party paying the mortgage alone will not get that party the house as separate property, or even the mortgage payments as separate property, the courts may consider the full contribution that party made to the house in distribution. More importantly, the court may see that as ability to pay – only one party has the ability to maintain the mortgage on the house.
Third, are the children living with you or grown? Courts will try to keep the children in the marital home to reduce the trauma of divorce, and often the house will follow the parent who will be the residential custodian. On the other hand, if the children are grown, the courts will look at the home as an asset that can be more easily disposed.
Fourth, how much equity is really in the house? If the house is underwater, it makes little sense to fight for it. But for most couples, the house may have a great deal of equity in it, and if the couple is older, it may be completely paid off. The more equity and the less owed, the more likely both spouses want to keep the house. If the house has small equity but solid overall value, it becomes a judgment call – keep it to sell later for more money or sell now and take your equity share and downsize.
Finally, what are my financial goals moving forward? If you are an older person with little in savings or retirement, the house will be the only asset to protect you moving forward, and you will want to fight for it in its entirety. If you have other assets, especially retirement funds, you probably want those more than the house. In that case, selling the house and investing the equity in a smaller home to keep your retirement funds makes good financial sense.
As you can see, whether to keep the house has to do with many factors, from your present ability to continue paying for the house, your downsizing alternatives, the opportunity cost of keeping the house over other assets, children living with you, and your overall financial picture. The house may have sentimental value, but financial value will pay the bills after divorce. You will need to work with your attorney to think about how the house fits into different financial scenarios for you and pick the one that works best for you.
If you have questions about the marital home and divorce, contact us – we can help.