Many clients want to know first and foremost what will happen to their home as a result of their divorce. This is an important question. Homes are valuable not only because of the financial investment but also because of the emotional ties. From a financial perspective, homes are oftentimes the most valuable asset involved in a divorce case. Therefore, it is worthwhile to consider your options and do your due diligence in deciding what makes the most sense for your family.
Equity is an integral piece of the discussion. Simply stated, equity is the difference between the fair market value of your home (i.e. what you could sell it for) and the mortgage or loans you have on the home. For instance, if your home is worth $400,000 and the mortgage you owe is $200,000 this means your equity is $200,000.
So, how do you go about dividing the equity? Frequently, in a divorce, one spouse will keep the home and pay the other spouse his/her equal share of the equity. This is otherwise known as a “buy out”. Payment can be made through the use of other assets or outright cash payment typically done after a refinance. Typically, the spouse keeping the house will be given some time like 30 or 60 days from the finalization of the divorce to make such payment. In this situation, when one spouse buys the other out, a refinance of the mortgage is a common practice to remove the other spouse from the encumbrance or loan. Another important step to take once the divorce is finalized is for the spouse who did not take the house to sign a Quit Claim Deed which will remove his/her interest from the title. The spouse keeping the home will simultaneously sign a real estate transfer form (Form 521). Both documents will be filed with the Register of Deeds.
The other option is to sell the home. In this situation, the parties will typically each take an equal share of the equity in the home upon the sale. Of course, this will only happen after the costs have been paid. This is a viable option if neither one of the parties can afford to pay the mortgage, insurance, property taxes and maintenance on the home. Additionally, there is a tax break you and your spouse might be able to take advantage of in order to avoid capital gains if you do sell the house before the divorce is finalized.
In contemplating what to do about your home, there are some key considerations. Here are some points to discuss with your McGill Law attorney:
• Can you or your spouse afford to keep the house?
• Will either of you qualify for a mortgage?
• How do you determine the fair market value? Do you use an appraiser or a realtor?
• Is the house a marital asset or is it partially premarital?
• From what date is the value determined … date of separation?
• What might be the best asset to use if you are buying your spouse out?
• If selling, will one spouse live in the house while it is listed?
• Who will be responsible for payment of the mortgage and utilities until it is sold?
• How do you decide what real estate agent to use?
• How do you allocate the costs incurred to sell the home?
• What if the deed is only in one spouse’s name?
• What if both spouses want to live in the home post-divorce?
If you are facing a divorce, take the time to consider these and many other important questions. Your experienced McGill Law team is here to guide you through the process. Call us today at 402-548-5418 and we will help you choose what works best for you and your family.