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Does Keeping the House in Divorce Make Sense?
As a New Jersey divorce mediator I know this is a question many divorcing couples will face. If you bought your house in 2006, 2007 or even 2008, you may not have a choice in this matter as the value of your home may be worth less than you paid for it and that’s another article for another day. But if you bought your house prior to the bubble, and there is some equity in it, first of all, congratulations and second of all, what do you do with it? When it comes to your house and divorce you have three choices as I see it:
Option 1: Stay in it until such time when you both decided to sell
In this case, either one or both of you would live in the house as roommates and share in the care and upkeep of the home. If you were to live together, you would each come to an arrangement on how both the basic expenses of the home were taken care of, any minor repairs or updates and any capital repairs that may be needed such as a boiler or roof. In the case where only one of you would live in it until you both decided it was time to sell, you in effect would be “renting” it from you and your ex-spouse so in these cases, we’d usually have the” tenant” (that is you) pay the mortgage, utilities and keep the house in livable shape performing such tasks as cutting the grass and shoveling the walk. If a capital repair were needed like a new roof, you’d share in that cost as it goes to the value of the home when you sell it. This situation is good for people where the home is “underwater” or the kids are just about to graduate and they can hang on for just a short bit. It also works for folks who want a divorce but just can’t afford to establish a separate residence just yet. Remember when working with your mediator to establish a timetable for when one of you will move out or the house will go up for sale. Do NOT leave it open ended!
Option 2: Have one of you “buy out” the others share of equity
This can be accomplished a number of ways. You can either trade other assets to compensate the party who is being bought out or you can obtain a larger mortgage and pay them a cash settlement for their share of the equity. Remember – it’s the equity in the house, not a share of the list price so work with your mediator to subtract the outstanding mortgage balance when figuring out who gets what. This makes sense for people who have the means to keep the house for the long term as chances are you’ll need to take on the whole mortgage outstanding plus add to it so your payments will go up and with today’s tight credit, you may or may not qualify. Be sure you’re doing this for the right reasons (that is YOU want to own a house) and not just because you think your kids want to stay in the house. Trust me – they don’t if it means constantly worrying about money and having to spend every free moment they have caring for it.
Option 3: Sell it to a complete stranger
This one requires little explanation but a trick I use as a mediator is if there are small disagreements on when to list and for what price is have one of you interview and provide a list of three agents you’d be happy working with. Then we have your spouse pick the one agent you’re going to list with. Abide by their recommendations and you should be fine. Remember – it’s a buyers’ market so price your home wisely and be aware if timing matters to you so you’re not holding on to the house for too long. This makes sense for couples who either can’t or don’t want to keep the home or for those whose children are older and grown. You may not need to live in a 4 bedroom house if it’s just going to be you.
No matter what you decide, remember – do a budget to see what makes sense for you vis a vis housing costs. Sometimes if a home is paid off or has a low mortgage rate, it makes sense to keep it even if the place is too big for you or if renting something is going to cost you more than your current place does!
If the divorce is being filed under one of the seven fault grounds (including extreme cruelty, adultery, abandonment, substance or alcohol addiction, institutionalization, deviant sexual conduct and incarceration), the 18 month separation period, required for a no-fault divorce, is waived. However, each ground for divorce has its own stipulations.
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