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1996 National Legal Research Group, Inc.

Distribution of the marital home often poses special problems in the process of marriage dissolution. For many couples, their home is their largest asset, so selling it at the time of the dissolution may be the only way for both parties to receive a fair share of the marital estate right away. Yet one spouse may have a special need to continue living in the house, particularly if there are any children still living at home.

After identifying the distribution that will best serve the client's interest, a lawyer must advocate persuasively for that distribution in negotiations with opposing counsel and, if necessary, at trial. The trial court's distribution is usually reversible only for an abuse of discretion, so appeals challenging distribution of the marital home rarely succeed. In addition, in cases involving exclusive-use awards or deferred payments, counsel must take care when drafting the agreement or decree to anticipate and avert disputes that might arise later on.

Part I of this article discusses factors that bear on the decision about how the marital home should figure in the final award. Part II reviews considerations in structuring the distribution of the marital home.

I. Factors Bearing on the Distribution

Needs of Custodial Parent and Children. Frequently, the custodial parent wants to remain in the marital home for the emotional, social, and educational well-being of the parties' children. It may be feasible to award the marital home outright to the custodial spouse if the marital estate contains sufficient assets to make an offsetting award to the other spouse or if deferred or installment payments would not work an undue hardship on the other spouse. A large number of cases have approved an award of ownership to the custodial spouse. E.g., Adams v. Adams, 589 So. 2d 736 (Ala. Civ. App. 1991); Navarre v. Navarre, 191 Mich. App. 395, 479 N.W.2d 357 (1991); Moak v. Moak, 631 So. 2d 196 (Miss. 1994); Hendricks v. Hendricks, 96 N.C. App. 462, 386 S.E.2d 84 (1989).

In a recent Missouri case, an appeals court held that the trial court's order requiring the sale of the marital home was not in the parties' best interests since the husband was residing there with the parties' four children. Instead, he should be awarded the home and ordered to pay the wife for her interest, either through a cash award or additional marital property, the court decided. Chambers v. Chambers, 910 S.W.2d 780 (Mo. Ct. App. 1995); see also Held v. Held, 896 S.W.2d 709 (Mo. Ct. App. 1995) (wife's physical and legal custody of parties' child was a significant reason justifying decision to award marital home to her). In a recent Vermont case, an order awarding the marital home to the wife free and clear of the husband's interest was upheld on appeal given the needs of the parties' children and the fault of the husband. Jakab v. Jakab, ___ Vt. ___, 664 A.2d 261 (1995).

Some courts have approved a decision to award the marital home to the custodial spouse even though it resulted in a disproportionately large distribution to that party. See, e.g., Sokol v. Sokol, 441 So. 2d 682 (Fla. DCA 1983) (no abuse of discretion to award husband's interest in family home to the wife, as the custodial parent, even though the home was the only significant marital asset); Pursifull v. Pursifull, 781 S.W.2d 262 (Mo. Ct. App. 1989) (proper to award wife 85% of marital assets, including marital home, in view of her lesser earning capacity and her status as custodial parent).

However, no rule requires that the marital home be awarded to the custodial parent. See In re Marriage of Rupp, 449 N.E.2d 1164 (Ind. Ct. App. 1983) (desirability of awarding home to custodial parent is only one factor to consider); Boykin v. Boykin, 445 So. 2d 538 (Miss. 1984) (no rigid rule exists requiring that custodial spouse be awarded marital home); Baker v. Baker, 866 P.2d 540 (Utah Ct. App. 1993) (totality of circumstances supported trial court's decision to order sale of the marital home, despite wife's argument that she and the minor children should be allowed to remain there).

Without going that far, courts frequently award the custodial spouse the use and occupancy of the marital home. See Daly v. Daly, 179 N.J. Super. 344, 432 A.2d 113 (App. Div. 1981). Many states recognize that a use and occupancy award is desirable to preserve a home for the custodial parent and minor children. E.g., N.C. Gen. Stat. 50-20(c)(4) (1995); see also Marano v. Marano, 200 A.D.2d 718, 607 N.Y.S.2d 359 (1994) (wife should have been granted exclusive possession of marital residence where her need to occupy it, as custodial parent of parties' two infant children, outweighed parties' need to sell it).

If, however, the home is a couple's most valuable asset, a lengthy exclusive-use award effectively may leave the nonoccupying spouse with no cash from the property division for a substantial time. In such cases, courts often decide against an exclusive-use award. E.g., Herron v. Herron, 457 N.E.2d 564 (Ind. Ct. App. 1983) (court approved order to sell house and divide proceeds where use and occupancy for period of children's minority would give wife the use of the bulk of the marital property for eight years). Some statutes limit the length of an exclusive grant of possession. E.g., Md. Fam. Law Code Ann. 8-210 (1991) (three years); Wis. Stat. Ann. 767.255(7) (West Supp. 1995) ("reasonable period").

Moreover, considerations in a particular case may weigh against an exclusive-use award. E.g., In re Marriage of Agazim, 176 Ill. App. 3d 225, 530 N.E.2d 110 (1988) (desirability of keeping children in the marital home was clearly outweighed by need to give husband sufficient funds to pay child support, provide for his new family's needs, and pay off his outstanding debts, particularly since there was no evidence that wife could not relocate in the area and continue to send the children to the same school); Blackmun v. Blackmun, 131 A.D.2d 801, 517 N.Y.S.2d 167 (1987) (marital residence could be ordered sold to provide for future living expenses and to satisfy marital debts, even though exclusive possession would usually be granted to spouse who has custody of minor child).

Judicial limits on tying up the marital home with an exclusive-use award were set out in In re Marriage of Stallworth, 192 Cal. App. 3d 742, 237 Cal. Rptr. 829 (1987). Although a trial court has broad discretion to make a family-home award, it must weigh the adverse economic, emotional, and social impacts on the minor child resulting from the immediate sale of a long-established family home against the economic damage to the noncustodial spouse resulting from the delay in receiving his or her share of the equity in the family home, the court said.

When the children have attained majority and have no mental or physical disability, an exclusive-use award is generally an abuse of discretion. E.g., Delehant v. Delehant, 442 So. 2d 1009 (Fla. DCA 1983) (grant of exclusive possession reversed where the only children living at home were adults); Wobser v. Wobser, 91 A.D.2d 286, 458 N.Y.S.2d 113 (1982) (same); see also Brundage v. Brundage, 100 A.D.2d 887, 474 N.Y.S.2d 546 (1984) (house should be sold where children were over 18 and resided away from home for the most part); Smith v. Smith, 280 S.C. 257, 312 S.E.2d 560 (Ct. App. 1984) (award of use and occupancy is not permissible unless that spouse has custody of minor children or has some other special need).

A court cannot grant exclusive use for the benefit of the stepchildren of the noncustodial spouse since that spouse has no duty to support the other spouse's children. Bledsoe v. Bledsoe, 295 Md. 183, 448 A.2d 353 (1982).

May a use and occupancy award be granted even if the home is the separate property of the other spouse? A Florida appeals court held that a marital home's classification as a husband's separate property did not preclude the trial court from ordering him to let the wife use the home for the care of the parties' minor child. Such an award functions as a form of child support and therefore must be taken into account when determining child support, the court added. Dyer v. Dyer, 658 So. 2d 148 (Fla. DCA 1995); see also McIlwain v. McIlwain, 441 So. 2d 517 (Miss. 1983) (fact that husband had inherited marital home did not justify refusal to allow wife and children exclusive use); Dunavant v. Dunavant, 670 S.W.2d 524 (Mo. Ct. App. 1984) (trial court acted within its authority in granting wife and children right to live in marital home until husband paid wife for her share of marital property, even though residence was husband's separate property); Villareal v. Laredo National Bank, 677 S.W.2d 600 (Tex. Ct. App. 1984) (court had power to grant wife and children use and occupancy of home even though it was husband's separate property); State ex rel. Chafin v. Halbritter, 191 W. Va. 741, 448 S.E.2d 428 (1994) (exclusive use of a marital residence may be awarded to the custodial parent in a temporary relief order during divorce proceedings regardless of the home's status as separate or marital property, West Virginia's high court held).

Some other courts have viewed the property rights of the owner/spouse as paramount. See, e.g., Gandelman v. Gandelman, 90 A.D.2d 494, 454 N.Y.S.2d 752 (1982); Vitkun v. Vitkun, 108 Misc. 2d 814, 438 N.Y.S.2d 981 (Sup. Ct. 1981). In some states, the specific language of a statute may prohibit a grant of exclusive possession. See, e.g., Pitsenberger v. Pitsenberger, 287 Md. 20, 410 A.2d 1052 (1980) (where statute excluded property acquired before marriage from definition of "family home," it prohibited exclusive-use order for home acquired by husband before marriage).

Other Special Needs. Child custody is not the only type of special need that bears on the distribution of the marital home. See Smith v. Smith, supra (spouse's severe disability or other special need may justify exclusive-use award).

A disabled spouse may have a special need for the marital home. E.g., In re Marriage of Imhoff, 461 N.W.2d 343 (Iowa Ct. App. 1990); Scott v. Scott, 155 Vt. 465, 586 A.2d 1140 (1990); In re Marriage of Toth, 224 Ill. App. 3d 43, 586 N.E.2d 436 (1991) (four years' exclusive use to older woman with medical problems). An abused spouse may also have a special need for the haven of the marital home. E.g., Cote v. Cote, 89 Md. App. 729, 599 A.2d 869 (1992); Held v. Held, 170 A.D.2d 310, 566 N.Y.S.2d 32 (1991).

Other Factors.Other considerations can be important and must be taken into account along with a spouse's custodial status or other special needs.

Does one spouse have particularly strong personal ties to the property, or was the property really intended as a gift for one spouse even though it is technically marital property? See, e.g., Ackley v. Ackley, 100 A.D.2d 153, 472 N.Y.S.2d 804 (1984) (where residence was deeded by wife's parents to parties shortly before their separation, awarding bulk of property to wife was appropriate).

Did one spouse contribute more to the acquisition of the home, even though it is technically marital property? A New York appeals court approved an award to the wife of the parties' entire interest in the marital residence in view of the husband's minimal contribution to the purchase and maintenance of the house and his dissipation of the parties' assets. The bulk of the funds used in purchasing the home came from the wife's separate property, and the husband had a history of dissipating assets by gambling, the court noted. Kozlowski v. Kozlowski, ___ A.D.2d ___, 633 N.Y.S.2d 523 (1995); see also McClellan v. McClellan, 873 S.W.2d 350 (Tenn. Ct. App. 1993) (home which was purchased with husband's separate funds but titled in both spouses' names was marital property, but trial court did not err in awarding home to husband).

Is the cost of upkeep high? The high cost of maintaining the marital home $10,400 per month was held to weigh in favor of selling the home rather than awarding it to the wife in a recent Missouri case. Baldwin v. Baldwin, 905 S.W.2d 521 (Mo. Ct. App. 1995); see also Stolow v. Stolow, 149 A.D.2d 683, 540 N.Y.S.2d 484 (1989) (although exclusive possession of a marital residence is generally awarded to a custodial spouse with minor children, the expense of maintaining the parties' "mini-mansion" would be extravagant and it should be sold).

Is the home the only valuable asset? This militates against an award to one spouse and in favor of sale. See, e.g., In re Marriage of Sheber, 121 Ill. App. 3d 328, 459 N.E.2d 1056 (1984) (decree should provide for eventual sale of parties' home where it is their sole asset); Baldwin v. Baldwin, supra (home which represented approximately 86% of parties' assets should be sold rather than awarded to wife).

Are there sufficient marital assets for the house to be awarded to one spouse, with other marital property awarded to the other spouse? This approach avoids the expenses of sale and may be a good alternative if one spouse wants to keep the house. See, e.g., Allen v. Allen, 672 P.2d 325 (Okla. Ct. App. 1983) (pension awarded to husband and marital home awarded to wife).

Is the house encumbered by a mortgage? When the home is encumbered by a mortgage, the debt is generally assigned to the spouse to whom the home is awarded. E.g., Pfliger v. Pfliger, 461 N.W.2d 432 (N.D. 1990). If the spouses are jointly liable for the debt, the spouse who wants the home may be ordered to refinance it within a specified time period or to sell it. Hileman v. Hileman, 909 S.W.2d 675 (Mo. Ct. App. 1995) (affirmed order that wife either refinance marital home and remove husband's name from underlying obligations within 60 days or else sell home and pay off mortgages; sale would be in parties' best interests if wife could not obtain refinancing). On the other hand, the trial court is not required to assign responsibility for the mortgage to the spouse who receives the home, particularly if the debt is owed to the relatives of that spouse. For example, in Abernathy v. Fehlis, 911 S.W.2d 845 (Tex. Ct. App. 1995), the parties had purchased their home with a loan from the husband's father, but before they had repaid much of it the father died and the husband inherited the lien. It was not error to award the wife the parties' home free of any obligations and to require the husband to pay the lien on the home, the appellate court held. See also Held v. Held, supra, 896 S.W.2d 709 (trial court did not abuse its discretion by awarding the marital home to the wife while assigning to the husband the responsibility for any indebtedness owed to his parents for the home).

Can the property be divided into two parts without engendering or perpetuating undue friction between the parties? Compare Johnson v. Johnson, 674 P.2d 539 (Okla. 1983) (no error in awarding six acres of tract to wife and 10 acres to husband where homestead on wife's portion was not even in sight of husband's property and trial judge had viewed real estate before fashioning award) with In re Marriage of Gies, 210 Mont. 234, 681 P.2d 1092 (1984) (no division by partition where parties could not exist as neighbors and partition would adversely affect salability of property).

What interim agreements have the parties made about the home? Separated spouses sometimes negotiate with each other and make some agreement about particular assets before they retain separate counsel. This happens not infrequently with the marital home. In some cases, partial agreements have been a factor in the trial court's property division. E.g., In re Marriage of Meadow, 256 Ill. App. 3d 115, 628 N.E.2d 702 (1993) (marital home became wife's nonmarital property when husband had deeded it to wife during parties' separation in exchange for her transfer to him of her interest in other real property); DiSanto v. DiSanto, 198 A.D.2d 838, 604 N.Y.S.2d 413 (1993) (decision to award marital home to wife was supported in part by evidence that husband led her to believe she would eventually receive home if she accepted relatively low support and maintenance payments during the period of separation).

What will the tax impact be? The tax consequences of the distribution become especially important when there has been substantial appreciation in the value of the home. See In re Marriage of Sedlock, 69 Wash. App. 484, 849 P.2d 1243 (1993) (tax advantages of nontraditional method of distributing home justified it).

The three basic methods of distribution have different tax consequences:

(1) If the client transfers his interest in the home to the other spouse, he or she recognizes no gain, and the transferee spouse takes the same basis in the house as he or she had when the parties owned it. 26 U.S.C. 1041. Because of the low basis, however, the transferee will recognize a large gain upon the eventual sale of the home unless he or she takes advantage of the tax-free rollover available under 26 U.S.C. 1034(a) by purchasing a replacement residence of equal or greater value within two years, or unless he or she takes the one-time exclusion under 26 U.S.C. 121(a) for individuals over age 55.

(2) If the parties sell their principal residence as part of the divorce and divide the sale proceeds, each spouse can roll over his or her share of the gain by purchasing a replacement residence that costs at least as much as his or her share of the sale price, or each spouse can take the one-time exclusion to shield his or her share from taxes. If the spouses have equal joint interests in the residence, each spouse's share will be 50%, but a different percentage can be achieved by making a transfer between the spouses under 1041 before the sale. See M. Davis, The Illinois Practice of Family Law at 875 n.5 (1995).

(3) If the parties agree to continue joint ownership and defer the sale of the home to permit one spouse exclusive use of the property, then when the home is eventually sold the spouses will share the gain, in the manner described above. However, the spouse who moved out will not be able to shield his or her share of the gain from taxes, because the tax-free rollover and the one-time exclusion are available only to a taxpayer who has sold a principal residence, and the spouse who moves out can no longer treat that house as his principal residence. J. Hesch, "Divorce and Separation," 95-5th T.M. at A-32, A-33. (1995). The property settlement agreement can be drafted, however, so as to have both spouses share the resulting tax burden that is put on the spouse who moved out.

One alternative is to require the spouse who remains in the house to reimburse the spouse who must recognize the gain for an allocable share of the taxes he or she must pay on the gain. Another alternative is to defer the sale during the period of occupancy, but terminate joint ownership by having the spouse who moves out immediately transfer his or her interest to the other spouse, while also requiring the spouse who remains in the house to pay the other spouse a share of the proceeds from the home's eventual sale. A drawback of this alternative to the spouse who remains in the home is that he or she may not have the funds needed to roll over the entire gain. Another drawback for that spouse is that he or she will not obtain any additional basis in a replacement residence for the funds paid to the other spouse. As a way to compensate the spouse who remained in the home for treating the other spouse's share of the gain as his or her gain, the property settlement agreement can require the transferor spouse to indemnify the other spouse for his or her added tax costs. Id. at A-33.

II. Considerations in Structuring the Award

Once the parties (or the court) have decided basically how the home will be treated in the property division (that is, whether it will be sold, used, or kept by one or both spouses), here are some further considerations.

If the House Will Be Sold. To avoid future disputes, the provisions for the sale should address how, when, by whom, or in what manner the house will be sold.

For one thing, the agreement should include some certainty about when the sale will occur. The timing should not be tied to events which will not necessarily happen at a definite time, and it should not depend entirely on the whim of one party, because it may be difficult under those circumstances to force a sale. Compare Salyers v. Good, 443 So. 2d 152, 153 (Fla. DCA 1983) (where agreement gave husband right to live in home "until such time as the same is sold," wife was entitled to force a sale through partition upon failure to effect an agreeable sale within a reasonable time) with Byrne v. Ackerlund, 108 Wash. 2d 445, 739 P.2d 1138 (1987) (decree which awarded real property to husband and liens to wife without specifying time for sale did not give wife right to force sale).

In addition, it is wise to set out some objective mechanism for how to sell the property. Lloyd v. Lloyd, 508 So. 2d 276 (Ala. Civ. App. 1987). One spouse may be put in charge of the process, but generally should not be given complete control. But see Wolf v. Wolf, 39 Conn. App. 162, 664 A.2d 315 (1995) (not an abuse of discretion to give the husband sole authority to determine the sale price of the marital residence; an order giving one party the authority to sell marital property can be fair and reasonable in that it avoids possible conflict between the parties, which could result in one of the parties thwarting the orders of the court). At the least, the spouse charged with responsibility for the sale should be required to use reasonable efforts to accomplish it.

The agreement could also set out a procedure to follow if the sale is not made as anticipated by a specified deadline. See, e.g., St. Hilaire v. St. Hilaire, 526 A.2d 28 (Me. 1987) (court transferred responsibility for selling marital home from husband to wife when it remained unsold after time specified in divorce judgment); Erickson v. Erickson, 452 N.W.2d 253 (Minn. Ct. App. 1990) (when home remained unsold after time specified in agreement, trial court assigned fixed dollar amount to wife's lien and characterized the lien as a mortgage entitled to foreclosure); Baldwin v. Baldwin, supra (provisions of decree that required reduction in listing price by specified amount each month between a specified ceiling price and floor price properly protected parties from extended financial drain).

It is also important to allocate responsibility for the mortgage payments and other costs until the sale and to specify whether the spouse who pays the costs will be entitled to reimbursement upon sale. See Bacon v. Bacon, 670 S.W.2d 594 (Mo. Ct. App. 1994) (where husband entrusted sale of marital home to the wife, she was not entitled to be reimbursed for mortgage payments during the period between the decree and the sale).

If the House Is Awarded to One Spouse. This alternative works best when sufficient marital property exists for the other spouse to receive an offsetting award of other assets at the time of the property division.

If an offsetting award is not possible, the transferor spouse may be awarded a sum of money payable at some future date (such as when the home is sold), but the agreement should cover the question of interest. Without a specific provision on this point, the parties will be uncertain whether interest accrues on the debt. See, e.g., Young v. Young, 44 Wash. App. 533, 723 P.2d 12 (1986) (decree that imposes lien on asset incident to property division, but defers obligation to pay until a later date, does not bear interest until the payment comes due). Courts disagree on whether it is an abuse of discretion for a trial court to omit interest on the deferred payment of an ownership interest in a home. Compare In re Marriage of Garcia, 638 P.2d 848 (Colo. Ct. App. 1981) (awarding interest on note was permissible) with Caddo v. Caddo, 468 N.E.2d 593 (Ind. Ct. App. 1984) (no need to award interest on husband's share; presumably trial court took "time value of money" in deciding upon award).

Furthermore, the transferor should be granted a lien to secure the payment of the debt. This approach should not be used if there is any doubt whether the lien will be enforceable. In particular, counsel should be certain that the spouse who receives the home will not be able to defeat the lien by claiming a homestead exemption. As a general rule, where there is no specific statutory provision for the disposition of a homestead on divorce, a statute authorizing the divorce court to make a just and equitable division of property controls. See Wiles v. Wiles, 871 P.2d 1026 (Utah Ct. App. 1994) (trial court's property distribution, which awarded home to wife and lien to husband for his share of the home's value, superseded the wife's ability to enforce her homestead exemption against husband's interest in the property); see also Ruprecht v. Ruprecht, 255 Minn. 80, 96 N.W.2d 14, 24-25 (1959); Closson v. Closson, 30 Wyo. 1, 215 P. 485 (1923). If the parties still owe money on the home, the spouse receiving the house outright should usually be required to refinance the loan. Hileman v. Hileman, supra.

If One Spouse Receives Exclusive Use. To avoid future disputes, the agreement or decree generally should specify whether the occupant's cohabitation or remarriage will terminate the use. See, e.g., Schaeffer v. Schaeffer, 184 N.J. Super. 423, 446 A.2d 537 (App. Div. 1982) (custodial parent's remarriage terminates only alimony component of exclusive-use award and not child support component).

Regarding the practical aspects of a family-home award, a California appeals court set out these guidelines:

The spouse in possession should be given an opportunity to purchase the other's interest at the end of the deferral period, or upon some further order of the court.

The trial court should retain jurisdiction to reimburse the spouse in possession for any capital improvements.

The order should require the spouse in possession to maintain the condition of the property and to maintain all appropriate insurance coverage with the other spouse as the coinsured.

Although the parties may be ordered to share the monthly payments and corresponding tax benefits, such an arrangement must be used with caution because it may become a source of continuing friction.

When fixing the amount of child or spousal support, the trial court should consider whether the family-home award provides lower-cost housing than would otherwise be available.

In re Marriage of Stallworth, supra.

Who Will Bear Responsibility and Receive Credit for Payments.Until the marital home is sold or awarded outright to one spouse, somebody has to come up with the mortgage payments and other expenses associated with keeping the home. Ideally, these responsibilities should be sorted out as soon as possible after the parties decide to separate, either through an interim agreement or a pendente lite hearing and order.

To avoid misunderstandings, any agreement or order which relates to the marital home should specify who will make the mortgage payments and pay other expenses and whether the spouse who makes the payments will be entitled to a credit or reimbursement upon the home's eventual distribution. Otherwise, a dispute over credit for the payments is likely to arise. E.g., Wolf v. Wolf, supra (husband could not be credited for the reduction in the mortgage balance during the pendente lite period, because that would improperly work a retroactive modification of a pendente lite support order).

Expenses to maintain the condition of the property after the decree but before the home is actually sold generally should be borne by the parties in proportion to their interests in the home. See In re Marriage of Einhorn, 178 Ill. App. 3d 212, 533 N.E.2d 29 (1992) (proper to order that if either party paid for major repairs during wife's exclusive use, other party's equity would be reduced by one-half of the cost of the repair). Regarding mortgage payments during the period of exclusive use, the payor generally should receive a credit for the reduction of principal when the home is sold. See, e.g., In re Marriage of McNeeley, 117 Ill. App. 3d 320, 453 N.E.2d 748 (1983); Filkins v. Filkins, 347 N.W.2d 526 (Minn. Ct. App. 1984).

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