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Specialty tag(s): Dividing the Marital Home, Complex Property, Austin Complex Property Division, Property Division

Who Gets the House in Divorce?

Jonathan James | September 29, 2021

As a divorce attorney, this is a question I get hit with regularly.  Lots of concerned voices. Actually–while the divorce is anything but simple–the house and requisite who/what/when/where does not have to be complicated.  That said, pitfalls do exist when divvying up the domicile.

Generally speaking, outside of a 401K, a couple’s home is often their largest asset. Therefore, care must be taken with what might feel in the moment like minutiae. Put another way, it is absolutely okay—preferable even—if your divorce attorney is a bit nitpicky or skeptical. That’s what you are paying for, and it could save you enormously.

So. Someone has filed and divorce is underway. What, regarding the living arrangements and allocation of the family home, should take place? What are the choices?

The Options:

  1. Sell the house, divide the proceeds in a certain percentage;
  2. One spouse keeps the house and buys the other out of the value/equity;
  3. Same as number two, only switch spouses;
  4. Co-ownership after divorce.

Seemingly straightforward, there are nuances to these options; clients can get broadsided by failing to address the specifics—so clear attention must be paid to the fine print.

Choice One: The Sell

Let’s imagine a couple decides to sell the house and split the proceeds. Easy, right? Not necessarily. Below are a few questions that may need to be answered first:

  • When will the house be listed for sale? 
  • Is the couple waiting on the end of a school year or a child to graduate from high school? 
  • Who lives in the house until it sells? 
  • Who pays the mortgage and continuing bills?
  • Who picks the realtor? 
  • Who decides list price, and keeps the house sparkling for potential buyers? 
  • Who pays for necessary repairs? 
  • Who decides whether or not to accept that counteroffer received from the buyer after the home inspection? 
  • What if the house doesn’t sell as quickly as anticipated?

A dizzying array of scenarios can transpire within the selling of a home, particularly in the current market. If details are not plainly set forth in the decree, parties could end up spending much more money down the road sorting out a mess. For example, the spouse NOT living in the home might get an ex too comfy on the couch and on his or her own timetable; there’s not a whole lot the spouse existing elsewhere can do but become impatient and resentful.

Written stipulations must address as many variables as possible, which means the couple (and lawyers) must initially brainstorm the right questions. Then set out the answers clearly, for example, “If the house doesn’t sell in X months, the court will appoint someone to sell the property and divide the proceeds evenly among the parties.”  That might persuade the spouse still living in the home to get motivated to sell.

Choice Two/Three: The Buyout

Say the house is of major sentimental value to one or both of the parties, who decide not to sell. Or kids live in the house and would prefer not to, in addition to acquiring divorced parents, shoulder the move to a new house and/or school on top of their forever altered family landscape. Or, as is becoming more common in this real estate market with skyrocketing home prices, a spouse would not be able to afford a comparable house if they were to sell their current house.

Determining the value of the house becomes a primary consideration when one spouse is going to keep the house and use other assets (or cash through a refinance or home equity line of credit) to buy out the other spouse. Value is easy to determine when you are selling a house—it is what a buyer is willing to pay for it when you list it on the market; however, when valuing a home without being listed on the market, it can become a much more subjective and fluid concept, even when certified appraisers and realtors are consulted. Further, with a family home, emotions often are entrenched. Dismantling a family’s history can be messy, daunting, and painful. Given the circumstances, selling the house might be the best-case scenario, but even for divorcing couples, relinquishing the house where plans, children, and hopes were born is complicated.

This may be why, in my anecdotal experience, both spouses more often than not want to keep the house, regardless of who ultimately owns and lives there. Divorce is a unique condition. At times, a key decision does not square financially, but makes sense to the heart of the family—keeping the house is often one of those choices—which is fine, provided caution is employed to answer the ‘what ifs’, in writing, which ensures each party receives assets of equitable value—or what they agree to be equitable—and in a timely manner.

Choice Four: Co-Ownership

There are rare circumstances where divorcing spouses agree to continue to co-own the marital residence after divorce. The circumstances are even rarer when it is recommended to do so. Perhaps the parties need to continue to own the property for a certain amount of time to avoid realizing a costly short-term capital gain. Maybe the parties have children at the end of their high school career and want to co-own the house until the children graduate from high school.   

Our goal as family law attorneys is to assist our clients in putting together a property division settlement that is unambiguous, enforceable, minimizes the potential of future conflict between the parties, and reduces the risk of future litigation. Having ex-spouses continue to co-own a single, illiquid asset can put these goals to the test.  In those rare instances where co-ownership is the best option, it is important for the spouses to work with their family lawyers, and potentially real estate lawyers, to address the multitude of potential issues in great detail to avoid ending up in a courthouse battle down the road. Everything from the payment of the mortgage, repairs, maintenance, improvements, and taxes down to the if, when, and how to sell when the time comes needs to be considered and addressed. 

Precautions

What else can be done in dealing with the house to safeguard against either party feeling bamboozled? 

Think of Murphy’s Law: “if anything can go wrong, it will.” Drafting agreements that clearly address the obligations of both parties for the what-if scenarios can feel onerous on the front end, but can save time, money, and heartache in the long run. 

Agree, in writing, to a home appraisal at the outset. A realtor can also provide a market value by looking at relevant comps in your neighborhood with a simple search, which many realtors are happy to do for free when they are likely to land your business.

Beginning the process with a realistic number—whether the house is sold or one spouse continues to live there—provides certainty, a baseline from which to create a plan with the rest of the assets that both parties can optimally live with. It is also paramount to consider all of a couple’s resources in settlement negotiations, to recognize that keeping the house might be important enough to one spouse that he or she is willing to give the other a much higher percentage of the 401K or some other community property asset.

If a couple has good home equity and decides, for example, the husband will remain in the home, it might make good sense to consider a cash-out refinance, which an agreed-upon part of can go straight to the wife as part of the settlement. In that example, wife can be granted a lien on the house to secure the amount owed to her, and that lien would be released once the cash-out refinance is complete.

Upshot

There are as many potential settlements as there are divorces, decrees, and ex-spouses. At the end of the day, all that needs to occur for a settlement is a mutual agreement. With large ticket items like a family home, couples can, with the help of their lawyers and a lot of paper, create inventive settlements that serve the best interest of both parties (and their children, when applicable).

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