How to Keep Your Home After a Divorce

by Beverly Bird

Divorce invites the court into the most personal areas of your life, including what's going to happen to your home. If you and your spouse can't reach an agreement regarding what to do with the marital residence, a judge will rule on the issue at trial. If you both want the house, the judge might order it sold rather than decide between you, unless he has a compelling reason not to. If you and your spouse negotiate a marital settlement agreement, however, there are some ways one of you can keep it.

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Practical Considerations

Before you wage a battle with your ex for the home, decide if keeping it is really want you want. This means thinking with your head, not your heart. Take stock of what your finances will be post-divorce – your available income might go up or down, depending on whether you're paying or receiving alimony or child support. Can you afford the maintenance, or will you have to work two jobs just to make the mortgage payment? If you realize after some honest assessment that you do want to go through the necessary steps to keep the property, it's usually a good idea to get a firm idea of its value by arranging for an appraisal. This is your starting point for negotiations with your spouse, and the court will want to know what the house is worth as well.

Refinancing

Assuming your home is not underwater – that is, the mortgage against it is not greater than its fair market value – some of its equity belongs to your spouse. If its fair market value is $300,000, and if you owe $250,000 on the mortgage, you'll probably owe your spouse about $25,000 for his share. This typically means refinancing the existing mortgage for $275,000 so that you can buy out his interest. You must be able to qualify for a loan of this size on your own.

Offsets

If a cash-out refinance is out of the question, you might be able to offset your spouse's share of the home's equity by giving up other marital property. This requires that you have another marital asset equal in value to the equity in the home. For example, if you have an investment account or a retirement account worth $50,000, your share of that would be $25,000, assuming a 50-50 split. If you relinquish your right to that share, this offsets your spouse's right to $25,000 of the home's value.

Deferred Sale

There's no law that says you and your spouse can't continue to co-own the home post-divorce. You might want to defer its sale if it's underwater and you want to wait out the market, or if you don't want to force your kids to move right away. This option means you would probably have to give up the property eventually, however. It would be listed for sale at some date in the future, which would be specified in your marital settlement agreement or your divorce decree. Judges sometimes order this option, and typically, the spouse who remains in the house must assume responsibility for the mortgage. This is then factored into any split of equity when the property eventually sells, because your payments would probably whittle away at the principal balance of the mortgage. The downside to this arrangement is that if you stay in the house, your spouse's credit is vulnerable if you don't make the mortgage payments as agreed. You – or the court – can include "hold harmless" language in your agreement or decree, giving your spouse the right to take you back to court for reimbursement if he has to make the payments himself.