There is no rule in New Jersey that says every divorcing couple has to sell the marital home. But deciding what happens to the house can be one of the biggest financial decisions you'll make during your divorce.
For many families, there are three basic possibilities: one spouse keeps the house and buys out the other spouse, the house is sold and the proceeds are divided, or one spouse keeps the house as part of a larger division of the marital assets.
Which option makes sense depends upon your finances and the rest of your divorce settlement.
Potentially, yes. If you want to remain in the marital home, one option is to buy out your spouse's interest.
Suppose the house is worth $800,000 and there's a $300,000 mortgage. That leaves $500,000 in equity.
Determining what your spouse is entitled to receive isn't always as simple as automatically dividing that number in half, because equitable distribution depends upon the circumstances of the marriage and the overall division of marital property. But once your spouse's interest is determined, you need a practical way to pay it.
That might involve cash, refinancing, other marital assets, or some combination of them.
This is one of the most important practical issues when one spouse wants to keep the house. Changing ownership of the property doesn't automatically change responsibility for the mortgage.
If both spouses signed the mortgage loan, transferring the house into one spouse's name generally doesn't, by itself, release the other spouse from the obligation to the lender. That's why a divorce agreement should clearly address what will happen to the existing mortgage and when.
Depending upon the circumstances, the spouse keeping the home may need to refinance, pay off the existing loan, or make another arrangement that addresses the other spouse's continuing financial exposure. And this is something you should investigate before agreeing to keep the house.
You don't want to negotiate an entire settlement around keeping a home only to discover afterward that you can't afford it or can't obtain the necessary financing.
If one spouse is buying out the other, you first need to know what the house is worth.
Sometimes the spouses agree on a value. Sometimes they obtain an appraisal. And sometimes each side has a different opinion about the home's value and the issue has to be resolved as part of the divorce.
You also need to determine the outstanding mortgage balance and any other liens against the property to understand how much equity actually exists.
Not necessarily. This is an issue people sometimes overlook. If you're keeping the house and buying out your spouse, there isn't an actual sale to a third party. That means there may be no real estate broker and no commission being paid.
New Jersey courts have rejected deductions for hypothetical brokerage commissions when the supposed future sale and commission are speculative. That's different from a situation in which the house is actually being sold.
When there's a real sale, the actual costs associated with that sale can be accounted for when determining the net proceeds.
Sometimes. Your house doesn't have to be considered in isolation from everything else you own.
Suppose one spouse wants to keep the marital home while the other wants to keep a business. Or perhaps one spouse wants the house while the other receives a greater share of certain investment or other marital assets. Depending upon the values involved, the parties may be able to structure an overall equitable distribution that allows each spouse to retain different assets.
There may also need to be an equalizing payment if the values don't line up. This is one reason I tell clients not to focus exclusively on getting "half of everything." Look at the entire financial picture.
Sometimes neither spouse can realistically afford to keep the marital home. Remember that owning the house means more than making the mortgage payment.
You may also have:
A house that was affordable on two incomes may not be affordable on one. Keeping the house simply because you're emotionally attached to it can become a very expensive mistake if doing so leaves you unable to meet your other financial obligations.
Yes. If you and your spouse can't agree about what should happen to the marital home, the issue may ultimately have to be decided by the court.
New Jersey courts have the authority, in appropriate circumstances, to order the sale of marital property. That doesn't mean a judge automatically sells the house whenever the spouses disagree.
The court has to consider the circumstances of the case and the equitable distribution of the marital estate. But neither spouse should assume that simply refusing to sell guarantees that he or she can remain in the home indefinitely.
If you and your spouse agree to sell, your settlement should address the practical details.
Who chooses the real estate agent? How is the listing price determined? Who remains in the house while it's being marketed? Who pays the mortgage, taxes, insurance, utilities, and repairs until closing? What happens if you receive an offer and one spouse refuses to accept it? How are necessary repairs or improvements handled?
These details may sound minor when you're negotiating the larger divorce settlement. They're not. A vague agreement about selling a house can create months of additional arguments after everything else has supposedly been resolved.
When a marital home is actually sold, mortgages and other liens generally have to be satisfied, along with applicable closing and sale expenses. The remaining net proceeds can then be distributed according to the parties' agreement or the court's order.
Don't automatically assume that "equitable distribution" means the net proceeds must always be divided exactly 50/50. The house is part of the larger marital estate, and the ultimate distribution depends upon the facts of the case and the overall financial resolution.
I understand why people want to keep their homes. Maybe you've lived there for 20 years. Maybe your children grew up there. Maybe you don't want your children to deal with a new house, new school, and divorce at the same time. Those are legitimate concerns. But the house is also a financial asset and a financial obligation.
Before fighting to keep it, figure out what it's worth, how much equity you have, what it will cost you each month, whether you can handle the mortgage, and what you're giving up elsewhere in the settlement in order to keep it. Then you can make the decision based on the entire picture.
If you're preparing for divorce and want to understand property division, your home, and the other financial decisions ahead of you, my free Divorce Smarter Course will walk you through the major issues involved in a New Jersey divorce.
Until next time,
Steve