The Marital Home in A Divorce

Often one of the most litigated issues in a divorce, and a topic at the first meeting with an attorney, is “What happens with the marital home?” The easiest logical solution is sell the home and divide the proceeds with the final division of assets. However, the “easiest” solution may not be the best solution for the family, so what other options are there?
 
If one party wants to retain the home, a determination of value can be conducted by a professional appraiser to determine the fair market value. There are several factors to consider in determining if one party will be able to retain the home.
 
1) What is the total equity in the home and how much is due to the other spouse? If one party is retaining the home, the Courts rarely allow deductions for the costs that would be incurred to sell the home. In most circumstances, equity is calculated by deducting the outstanding mortgage (and any other liens) from the appraised value.
 
2) Once equity is determined, the other party’s share needs to be calculated. In most long-term marriages, the equity will be divided. For the party retaining the home, are there enough other cash assets to “buy out” the leaving spouse, or is there enough equity in the home to borrow against and pay the other spouse?
 
3) Who is on the mortgage? If both parties or only the leaving spouse are, the mortgage will need to be assumed (which many not be permitted by the bank) or refinanced. A common challenge many are facing right now is that mortgage rates are substantially higher than the current mortgage they hold. If the bank does not allow an assumption, the party retaining the home needs to refinance often at a higher rate. This can lead to a much larger monthly payment that needs to be considered and analyzed in the overall decision making process.
 
The overall financial picture will dictate what is going to happen to the marital home. The ability to refinance and whether the rate will change are very important considerations. The party retaining the home needs to be able to afford the home, refinance or remove the other party from any liabilities with the home, and there needs to be access to assets to compensate the other party for his or her share of equity.