A QUESTION I OFTEN GET from people going through divorce is, “Can I keep the house?” This seemingly simple question is actually a multifaceted one fraught with complicated facts and emotions. Years ago a man literally divided the house in half by using a chainsaw to cut through the roof and the walls. That triumph of emotion over intellect is not the preferred way of answering the question.
Generally, there are two main areas with many sub-parts to explore. First, does the income and asset picture allow you to buy your spouse’s interest? Second, assuming you can buy out your spouse, can you afford to keep the house?
In most cases the marital home is subject to equitable distribution so both spouses have an interest in the equity (Fair market value – mortgage indebtedness=equity). In some cases there is very little equity, making a buyout easier. In others, there is a great deal of equity. Are there other assets that will allow an offset, i.e., trading a share of
those assets for the spouse’s share of the home equity? If not, will the spouse agree to a buyout over time (e.g., monthly payments)? Can financing, either private or through a lending institution, be obtained?
Assuming you can trade, finance or otherwise purchase your spouse’s interest, can you afford to keep the home? Do you have enough income to make monthly payments? Wages, investment income, alimony and child support all count, but even if you can afford to make monthly payments, can you afford all the other expenses that come with homeownership, such as taxes, utilities, insurance, repairs, maintenance, etc.? And, even if you can, will that leave you “house poor”, pouring so much of your monthly income into your house that you have little or no money left to do anything else? This comes down to a personal lifestyle preference. For some, the house is the highest priority. For others, a less constricted lifestyle is more important.
Even in cases where there are enough assets to trade for the equity in the house, you will undoubtedly be given a reasonable period to refinance the mortgage in order to release your spouse from the obligation. Therefore, the amount of equity and your income will still come into play in deciding whether you will qualify to refinance the mortgage. If you can’t, the house will probably then be sold.
There are other factors to consider. If you buy your spouse’s interest and the market improves, you won’t have to share the upside. If, on the other hand, the market tanks or major repairs are necessary, you won’t have anyone with whom to share the downside – it’s all yours. By selling to a third party, you will share the profit or the loss and any needed expenses.
Can I keep the house? The answer varies from case to case. It is a question that you and your lawyer should discuss at length. You should consider available options and then make the decision that fits best with your future plans.