Home Ownership and Mortgage Considerations After Divorce
One common issue that soon-to-be former spouses face when going through a divorce is how to handle the distribution of marital property. The state of New York is an equitable distribution state, meaning that in a divorce, the marital property should be distributed equitably.
In divorce mediation, the goal is to work toward an arrangement that is fair for both parties and is something that both parties can agree to. When the spouses own a home, resolving the issue of what to do with the marital home going forward can be difficult. There are a few different options available for spouses to consider when faced with this common scenario.
If Your Spouse Wants to Buy You Out
When it comes to the ownership of marital property, one way to work out the distribution of the marital home is for one spouse to buy out the other spouse. Generally, this is accomplished by one of the spouses refinancing the home and obtaining the funds for the buyout. The purchasing spouse becomes responsible for the existing mortgage, as well as the additional funds necessary for the buyout. If this is not possible, either because the spouse cannot be approved for a new mortgage, or cannot afford to take on a larger mortgage, it is not uncommon for the bought out spouse to receive more of the other assets, such as investment accounts, or retirement accounts.
If you have children, the home is most often purchased by the parent who will be the residential parent, since it will be less disruptive to your children if they are able to continue living in the family home. It is a good option to consider if splitting the equity in the home is not enough for either of the parties to use as a down payment for a new home to house the children.
It is also a sensible solution if the condition of the housing market is not ideal for selling, and by selling both spouses end up with a loss.
Of course, both parties should be aware of the ramifications of making this choice. The marital home may appreciate in the future and you will lose out on that additional benefit. However, if the home depreciates, your spouse alone will bear that loss. This is also true for the asset he/she has traded for the home. Therefore the risk goes both ways.
Determining the Value of the Marital Home and Obtaining a Fair Market Value Appraisal
If you and your spouse are considering a buyout, you will need to know the value of the home. If you and your spouse are in agreement about the value, or there has been a recent appraisal, this may not be too complicated. However, where there is disagreement as to the value of the home, oftentimes people turn to online sites to get an estimate of the value of the home. Unfortunately, these sites are oftentimes of less help as people would believe. They do not give consideration to many of the factors that go into valuating a home properly. A better option is to hire a neutral real estate appraiser who is a member of The Appraisal Institute, to determine the fair market value of the home. There will be some additional cost associated with hiring a real estate appraiser, but this is often the best way to find out the value of the home and is most fair to both parties.
How to Remove Your Name from the Mortgage After a Buyout
In order for your name to be removed from the mortgage after your spouse buys you out, typically, your spouse will need to refinance the home in his/her name only. If your name is not removed from the mortgage, the lender can still hold you personally responsible if your spouse does not make the mortgage payments after your divorce.
The time frame for this process will depend on what you and your spouse agree to. Your spouse will need to apply for financing on his/her own. Once approved, as part of the refinancing process, your name can be removed from the title to the property. This is typically done at the closing to the refinance by both of you signing a deed transferring title from both of you, into the name of the purchasing spouse.
Refinancing Versus Qualified Assumption of the Loan
Though refinancing is probably the most common way for one spouse to have the other removed from the mortgage and title to the home, there is another way to go about doing this. The other way is a qualified assumption of the loan. To do this, the spouse that is going to keep the house can ask the lender to remove the other spouse’s name from the mortgage. The benefit of choosing this option is that refinancing can be expensive, so this may save a substantial sum of money on closing costs. It also would mean keeping the same interest rate and other terms of the existing mortgage.
Keep in mind that this option is not always available. Some banks and mortgage lenders do not offer this option. Even if they do, they may require a minimum credit score, and that you are current on mortgage payments. If qualified assumption of the loan is an option for you and your spouse, it is something worth considering, in order to save money on refinancing costs.
What If You Can’t Get Your Name Off of the Mortgage?
Under some circumstances, you may be unable to get your name taken off of the mortgage. One reason this may happen is if you and your spouse are behind on mortgage payments. Your spouse may not be able to get the loan refinanced in his/her name. If you are facing this setback, you may wish to consider other options, such as selling your home.
When is Exclusive Possession of the Marital Residence Appropriate?
In New York divorce cases, the judge has the authority to grant one spouse the right to exclusive occupancy of the marital home. The judge can award one spouse the right to exclusive occupancy (typically on a temporary basis) even if the other spouse is on the title and mortgage. Some of the things the judge will take into consideration are the ages of the children, what grades they are in, the affordability of the home, and the amount of equity in the home. These are things that you can also take into consideration in mediation. Sometimes if the residential spouse cannot afford to buy the house, or if there is no way for the residential spouse to take the other’s name off the mortgage as part of a buyout, they continue to stay partners in the home for a fixed period of time. Generally, the person staying in the home is responsible for the mortgage and costs of running the home with their own income support payments they may receive. Provision can be made in their agreement, that should the payments be late on the home, the spouse not living in the home can ask that the home be placed on the market in order to protect his/her credit standing.
Trading as a Means to Resolve Distribution of the Marital Home
Another way to move forward with a fair distribution of marital property is to trade your share of the home for a greater share of other assets. This can often work the same way as a buyout. During mediation, you and your spouse will divide up all the assets in such a way that the spouse that gives up title to the home receives his/her fair share of the home by getting a greater share of other assets to balance things out. This can be a simple way to work out which spouse gets which assets, especially if the spouses are in agreement when it comes to the value of the home and other assets.
Selling the Marital Home
A final option to resolve the issue of which spouse gets which assets in the divorce is to sell the house and share the proceeds according to what you both believe to be an equitable distribution of the equity in the home and other assets you are to share. There are advantages and disadvantages to this method. If it is a sellers’ real estate market at the time the house gets put up for sale, then the spouses may both benefit financially from this decision. Also, if the family has accumulated a large amount of debt in the marriage, some of the proceeds of the sale can be used to clear up the debt, and give both parties a stronger start in going forward without the burden of these debts.
Divorce Mediation for New York Families
When dividing up marital assets, mediation can be an effective way to resolve differences in a reasonable and equitable way. At Divorce Mediation Professionals, we can help you and your spouse work towards a division of assets in your divorce that best suits the needs of your family. Contact our office today at (516)222-0101 or online at www.divorcemediationpros.com. Call today to schedule your free consultation.