“Who gets the house in a divorce?” is one of the most emotionally charged issues with the division of property in a divorce. Amidst the sense of loss, worry about the children’s well-being and your own economic stability, you may each want the stability of keeping the marital home.
In this difficult decision about how to do the divorce house split, it is best to look more broadly at how to split assets in a divorce, the affordability of your housing options, and the related divorce tax questions. The following options, including their advantages and challenges are covered in more depth further below:
- Selling the House
- Negotiating a Buy-Out (or trade)
- Co-Owning a House After Divorce
How to Split Assets in a Divorce
How to split assets in a divorce should depend on your unique circumstances, resources, and goals. For example, if you have significant debt with high interest rates, your economic survival may require selling the house to pay off as much debt as you can. If you are worried about your financial stability in retirement, you may want to trade house equity for retirement funds or more cash in the bank. With such varied goals and circumstances, it is essential for you to take a methodical approach when deciding upon who gets the house in a divorce.
Making the Decision about Your Divorce House Split
Step 1: Gather Information
Your first step in evaluating your marital home options should be to gather the following personal and financial information:
Envision your life after the divorce: What type of property will best suit your needs and lifestyle?
• How much space (sq. footage and number of BR/BA) will be ideal?
• How much outdoor space / land will be ideal?
• What would be the ideal location, given work, school, activities, affordability, etc.?
When might the answers to question #1 change in the future, due to any of the following factors?
• Your kids leaving home for school or work
• Your change of employment or retirement
• A potential remarriage, or other desire for relocation
What is the current market value for your marital home?
Online sources such as Zillow or Redfin are only accurate in some areas. Obtaining a Comparative Market Analysis (CMA) from an experienced Real Estate agent is more accurate, which they will usually do a at no charge. If one of you is attempting to keep the home and “buy-out” the other, and you do not agree on the value, a professional appraisal ($800-$1,500 depending on your location and ft. sq.) will be the most accurate. If you are selling the home, an appraisal will not be necessary; the market value will be whatever somebody is willing to pay for it, which your real estate agent can predict.
What is the current equity for your marital home?
Equity is generally considered to be the current market value for your home, less the total amount due on the mortgage(s), any home equity line of credit loans (HELOC), and liens against the property (such as back property taxes due). While there is some variability between State divorce laws, in most circumstances you can expect to equally divide the equity from a marital home.
What are your current monthly expenses for the marital home?
What is the amount of your current mortgage, HELOC loans (if any), property taxes, insurance? What are the average utilities per month for the home?
What are the details of your mortgage and HELOC loans?
Are both your names on the title of the home? Are both your names or only one of your names on the mortgage and HELOC loan? What is the interest rate of any loan associated with the home?
How much money will you have available for monthly housing expenses?
It is essential to develop a monthly budget for your income and expenses after divorce. To determine how much is available in your budget for housing expenses, you might need to first determine the child support and / or spousal support payments in your divorce.
What would other housing options cost you?
What would it cost to purchase or rent a home that meets most of your criteria from question #1 above? What other housing options might be possible or doable? These alternatives can help you evaluate your options for who gets the house in a divorce.
What might be the capital gains tax on the sale of the home after divorce?
Depending on what you initially paid for your home, the amount of improvements (with receipts) you have invested, the current market value of your home and other potential factors, you may have a capital gains tax on the sale of the home after divorce. How might this change if one of you purchased the home from the other person, then sold the home a few years later? For more information about divorce tax questions, read that section of this free eBook on Divorce Finances and Tax Questions.
Step 2: Evaluating your Options for the House
Option #1: Sell the House During the Divorce
Selling the marital home is one of the most common divorce house split options, for a few reasons:
- It provides for a “clean break” from the house financially and emotionally.
- It simplifies your divorce finances negotiations.
- If you have significant credit card or other debts, it can provide resources to pay off some or all these debts, allowing you each to move forward with less monthly expenses.
- If you are wondering “Can I be forced to sell my house in a divorce?“ The answer is YES. Selling the marital home is the only divorce house split option that does not require negotiation and agreement between the spouses. In other words, it is what attorneys will advise and a judge will order when there is disagreement on how to split assets in a divorce.
When you are evaluating this option, keep in mind that you will be paying an average of 5%-7% of the sales price for your sales expenses and closing costs. Your real estate agent can help you calculate and project the net proceeds from the sale of your marital home.
Option #2: Negotiating a Buy-Out (or Trade)
Benefits of this option include:
- Keeping the home in the family can provide ease and stability for kids.
- Only one person has the expenses and work of finding and establishing a new home.
- You will avoid paying the sales expenses and closing costs.
- You might negotiate trading house equity for other assets and/or taking on other debts.
Challenges with this option include:
- Can you afford a new payment? In most cases, you will need to borrow enough to pay off the current mortgage and your spouse’s share of the equity.
- If both of your names are on the mortgage, you will need to ultimately refinance or pay off the mortgage to remove one person’s name. In the meantime, their credit will still be tied up with the home.
- Based on income and current interest rates, the person who is bought out may never qualify for a loan to own their own home.
- Emotional challenges include being the one to leave the shared home, being the one who continues to live amongst the memories of the shared home, and a dynamic where the kids never associate a parent’s new residence as “home.”
Option #3: Co Owning a House After Divorce
The option of co-owning a house for a defined amount of time after divorce can be a creative approach for unique circumstances and goals, which can include:
- Holding onto the house for a few years until the children move out on their own.
- Waiting to maximize house sale proceeds based on the housing market or minimizing the capital gains tax on the sale of the home after divorce.
- If neither could afford to own by themselves, you can both continue to build equity in a home.
- In a home or property that can be divided into separate private living spaces, ex-spouses can continue to share the investment.
- Holding onto a home with the agreed-upon goal of gifting it to your children.
- When interest rates are high, you may want to wait to refinance and pay out the equity after the rates come back down.
This option only works if you have respectful communication, financial trust and integrity with your ex-spouse. It requires firm written agreements about who can live in the house, how to handle all the expenses, maintenance, privacy, and tax deductions.
One variation of this option is that you both move out and turn it into a rental house, for which you equally share the rental income and expenses. You may then, years later, decide to later sell the house or one person buys out the other. Keeping the house as a shared investment property could be a worthwhile hassle to meet certain goals, such as providing more income or selling the home later to help pay for your children’s college expenses.
The Divorce House Split Decision: Common Questions
Isn’t a house the best investment?
Outside of unexpected house damages and natural disasters, residential real estate has long been considered one of the safest long-term investments. Nearly everybody would rather have the security of their own home and have their monthly housing payments be gradually buying equity. However, depending on your local real estate market, your home’s value may not be appreciating more than other investments. More importantly, if you are paying high interest rates on credit cards or other significant loans that you could pay off by selling the house, then you might be losing wealth by holding onto the house.
Isn’t keeping the house the best thing for the kids?
Maybe, maybe not. Your children’s attachment is primarily to their parents and other close family members, not to walls and windows. They will adapt and make any place home that is feels safe, and their parents’ financial stress is a part of that. However, you may consider their community connections with neighbors and school friends and prioritize housing in a particular neighborhood or making sure you stay in the same school district.
Do I have to give my spouse equity in a divorce?
There are several factors that affect a divorce property division, including the variable divorce laws in different States. In Oregon, it is regardless who’s name is on the loan or title, or who paid the mortgage and utilities; the equity gained in a home during marriage is generally considered a joint marital asset.
Do you have to give your spouse equity in a divorce? That depends. You may trade out other assets or debts (such as retirement accounts or debts) in exchange for equity, You may agree to not pay equity in exchange for being solely responsible for paying the children’s college tuition. If your spouse will be receiving a sizeable inheritance, they may not require an equity payout from the property. If you would like to explore creative options for a divorce property division, look for an experienced divorce mediator to help you both discuss your options and how they might impact you.