Keeping or Selling The Marital Home Upon Divorce
Key Points
  • What happens when neither spouse wants the marital home and it can not be sold to cover what is owed on the mortgage?
  • The quest to keep the marital home for the child(red)’s sake is a common financial trap for divorcing couples.
  • A bad housing market will often force couples to postpone a divorce and remain living together. The couple lead separate lives until the value of the house returns to a level that is affordable to sell.

Once upon a time, divorcing couples enjoyed the consolation of dividing a home that had appreciated during their ownership as well as easy mortgage funding for the purchase of a replacement home or the refinancing of an existing mortgage. No more.

For many unhappily married couples, the so-called American Dream - home ownership - is a waking nightmare. For these unhappy individuals, that metaphor of middle-class success - the marital home - has become a prison "that neither spouse can afford to maintain, and that they cannot sell for what they owe."

A collapse of the housing market makes the disposition of the marital home, which is often the largest asset a divorcing couple divides, very much a problem. Moreover, with nearly one in six homes "underwater" - that is, the mortgage is greater than the market value - the traditional divorce regime has been turned upside down. Divorcing spouses "used to fight about who gets to keep the house. Now we fight about who gets stuck with a dead cow," said Gary Nickelson, president of the American Academy of Matrimonial Lawyers.

Normally, a divorcing couple divides the family home in one of three ways: one, sell it on the market; two, a buyout of one spouse by the other; three, joint ownership with sale at a later date.

Some spouses, who might want to use options one or two, now are forced to take option three. And some, according to reports, are even sharing the house during and after the divorce.

A collapse of the housing market raises a major consideration for divorcing mothers who want to keep the marital home. Courts frequently award the family home to the custodial mother, but a woman who accepts it as her share of the marital estate should think very long about the deal. Even under the best conditions, a house is barren asset; it pays nothing until it is sold. The Great Recession has made this economic equation even more difficult: no one knows how far the housing market will sink. In some parts of the United States, houses have lost 30 percent or more of their value since the peak of the housing boom. And in places where the housing mania ran wildest, the bottom - the point where housing prices level - is not in sight.

Actually, a souring housing market is only one consideration for those contemplating divorce. Not only do unhappy couples face a souring housing market, but also a gloomy economy. The phrase secure job now seems a quaint expression from another time. Many workers, both white- and blue-collar, now work with the shadow of the axe of unemployment darkening their days.

"The unemployment rate also creates obstacles for those contemplating divorce. Some spouses who have lost jobs have decided to stay home and care for the children. This can help ease the burden of paying for childcare, especially on one income. But in a divorce, a spouse with a stable income could have problems proving...he or she is best suited for primary custody of the children."

"The high unemployment rate also makes it more difficult for spouses to find jobs with sustainable salaries that will allow them to live independently from one another. Some married couples are discovering that when their assets are divided between the two of them, there may not be enough left over to pay the couples' debts, let alone begin new, separate lives," writes one observer.

Couples contemplating divorce must also face the higher cost of carrying credit debt and mounting costs of living. In good times or bad, joint credit card debt remains the responsibility of both spouses who each have joint and several liability for the debt. This means that each is fully responsible for the debt. On top of this, interest rates edge upwards when lenders deem a borrower risky.

Divorce normally means the establishment of a second household and the two households, according to sources, normally cost 30 to 40 percent more than one -- a daunting prospect at the time of shrinking incomes.

That said, couples divorce in good times and bad. A divorce in recession may serve to reiterate a general principle of all divorce: cooperation between the spouses, however difficult, reduces costs.

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