The mortgage has a role to play in this decision.
Most of us own a home partly because we could take out a loan that represents the lion's share of the purchase price. If you were married when the house was purchased, your mortgage likely is in your name and your spouse's name. Many people going through a divorce do not realize that changing who appears on the title to the home is not the same as changing who appears on the mortgage.
To change the name on the title to the home, a document must be drawn up that deeds your interest in the house to your spouse if they are the ones who will remain inside the home after the divorce has concluded. All it takes is a short amount of time to write up the document and then prepare it for your and your spouse's signatures.
The process of getting your name off of a mortgage is much more complex and requires a refinance of the loan in all likelihood. Your spouse would have to apply for a refinance and then qualify for the refinance. This is not a simple process and requires that the bank or lender do some research into the income and assets of your spouse. If it is determined that they lack sufficient money to pay a refinanced mortgage, the application will be denied.
As such, because it is far from a guarantee that the party who requests a refinance will be allowed to get one, this must be a factor that you and your spouse think about (along with your attorneys) when deciding what to do with your home. Your spouse can't provide you with a "guarantee" that they will refinance the house within "X" amount of days after the signing of your final decree of divorce. Suppose you are put in a position where you have to decide whether to buy or sell. In that case, concern over the refinance of the home may push you towards wanting to sell the home versus allowing your spouse to remain in the house with an assurance that your name would be removed from the title via refinancing.
Unless you and your spouse agree on the home's value, an appraisal may be necessary. If you or your spouse voice a desire to remain in the house, an inspection may be required to determine the market value.
With the popularization of real estate-based reality television shows and the proliferation of websites designed to inform us of the homes for sale across the country, many people like to think of themselves as appraisers and real estate agents all wrapped up in one package. However, unless you are a licensed real estate agent or are an experienced realtor, you ought not to venture into the land of trying to guess just how much the most valuable asset you own is worth.
Going off of what your neighbor down the street sold their house for two years ago, or off what your county appraisal district said your house's value is, won't help you much. It pays to spend a few hundred dollars to have an expert do the evaluation and appraisal. After all, you likely have no problem hiring an expert to work on your car, so why would you have a problem having an expert work on the sale of your home?
Share costs of the home sale or take them on by yourself once the divorce concludes.
Ultimately if you believe that your house will be sold relatively soon after your divorce, but you insist upon staying in the house, you may want to rethink that position. Many parents especially want their children to remain in the home for stability's sake after a divorce concludes. While this is a noble goal, I would argue that it will be just as painful to sell the house a year after the divorce as it would be to rip the band-aid off and get it over with now.
One area where you will benefit from agreeing to sell the house with your spouse is that the closing costs, real estate agent fees, and other expenses related to the sale of the home can be borne by each of you equally rather than by you by yourself in a year or two. This way, you will not be in a position where you risk what the market will do in a year or two, especially now, where the housing market is strong and trending upwards.
If you are moving out and your spouse stays in the home, be sure to have a Deed of Trust to Secure Assumption signed
I cannot emphasize enough the importance of a Deed of Trust in the context of your leaving home with a mortgage that bears your name. If your mortgage has both your name and your spouse's name, and you agree that they can remain in the home after you leave, this is a situation with liability written all over it from your perspective.
Even if your spouse agrees to put language into your Divorce Decree that guarantees their payment on the loan, you should not allow your divorce to conclude without a Deed of Trust to Secure Assumption having been signed by your spouse, filed with the county, and sent to you. This document essentially will allow you to foreclose on your spouse if the mortgage is not paid on time and in total over some time. You would be able to step into your spouse's shoes, pay the note and gain possession of the home.
Keep in mind that if your name remains on the home mortgage and it becomes apparent that your spouse is not paying as they are supposed to, this will keep you from being able to purchase your own home down the road. Secondly, your credit report reflects the home loan and is negatively impacted by the failure of your spouse to make good on their promise to pay the loan as well.
Set the house for sale at a future date if the goal is to have the children remain there until graduation
I have had clients in the past who have agreed to allow their spouse to remain in the home for the sole purpose of having the children there to continue to be zoned to a particular high school. Suppose this is an arrangement you can see you and your spouse entering into. In that case, it is wise to decide within your divorce decree that upon the graduation of the youngest child from high school, the house will be put on the market with the assistance of a licensed realtor.
While you cannot specify a "sell by" date, you can undoubtedly specify a "list by" date. As far as payments on the mortgage, home equity loans, property taxes, and other considerations, you can negotiate with your spouse on these terms and commit them to write in your final decree of divorce. This way, there are no unanswered questions on the subject moving forward.
Buying a home after your divorce and an introduction to retirement savings and divorce
I want to share my thoughts on buying a home after your divorce has concluded in tomorrow's blog post. Secondly, an essential financial topic to consider in the context of a divorce is the importance of saving for retirement in your post-divorce life. This topic will be covered as well tomorrow and on into the days following as well.
In the meantime, if you have any questions about divorce or family law, please do not hesitate to contact the Law Office of Bryan Fagan, PLLC. We offer free consultations with a licensed family law attorney six days a week to address and answer your particular questions.