In most divorces, the house tends to be both the most significant asset of the parties and the source of greatest contention. Too many people see the marital home as the “grand prize” of divorce, when no such “prize” exists.
In Missouri, the courts divide marital property equally. So, if a couple has a home together in their joint names, the couple each have a half-interest in the ownership and equity of the house. However, if one spouse used separate funds as a down payment, that spouse may be able to trace those funds as separate property – or a court could find that the property had been converted to marital property. Barring keeping ownership in the name of one party, it will be difficult to escape a jointly held home to divide.
When the court looks to who should retain the home, the court has three options: (a) give to spouse A; (b) give to spouse B; (c) order the house sold and the proceeds divided equally. If one spouse has been a caregiver to children in that house, the court may want to keep the children and caregiver in the house if financially feasible. Without children, the court will consider which party would have more difficulty finding a suitable residence and which party could still afford the marital residence. These considerations matter and should motivate the parties themselves to give deep reflection over whether to keep the home and how.
The house can become a trade-off: if one spouse wants to remain with the children in the house, the spouse would have to pay to the other spouse his or her equity share. If that sum is large and not available in cash to the spouse wanting the house, an asset trade could occur, with one spouse getting the house in lieu of a claim to a retirement account. But is this a good trade? It depends on the financial circumstances of the home-seeking spouse. If that spouse can refinance the mortgage and pay it, its long-term value may be worth more than having retirement funds. On the other hand, if that spouse cannot refinance, might have trouble maintaining the mortgage, or would lack substantial funds post-retirement, the house may not be worth the trouble.
What about a situation where the house is not such an asset but almost under water, i.e., negative equity? In this case, both parties would lose money on a sale at divorce, but allowing one to remain and working to ride out the market and fix up the home in the long term could suit the parties’ financial interests. Creative agreements can be drafted to allow former spouses to still live together for a certain period of time prior to a sale. In some cases, it may be necessary where neither spouse can afford to move.
The point of this post is not to solve every home scenario but to demonstrate how each house situation has its unique emotional and financial issues, and that it is always better for parties to reach an agreement that works for their particular circumstances than let the court force the issue by a sale that neither party wants.
If you have questions about who gets the house in a divorce, contact us – we can help.