What do I do with the Family Home in a divorce?

For most American families, the family home tends to be the single largest asset held in the marital estate. The question quickly becomes who should get the family home in the divorce. Should the wife get it? Should the husband get it? Or should they sell the home and split the proceeds? If they sell the home, how should the proceeds be distributed?

Dealing with the family home is often complicated by a desire to keep the children in their home while they grow up. Frequently, the wife has emotional ties to the home and will want to keep it. This is where she raised the children, decorated and entertained. The key question then becomes whether she can afford to keep the home. If the wife keeps the house, she is receiving an illiquid asset that does not buy groceries for her children or generate any income for the family.

The first issue that must be considered is who owns the house. Is the family home a marital asset that should be split equally or does one spouse have a claim to a greater share?

WHO OWNS THE FAMILY HOME?

In a divorce, the first question a couple must consider is who owns the family home. Is it a marital asset that should be divided equally, or does one spouse have a separate property interest in the home that would result in an unequal division.

In Oregon, property that is acquired during the marriage is a marital asset and each spouse is entitled to an equal share upon divorce. There is also a presumption that each party contributes equally to the marriage. This presumption is designed to protect the homemaker. These presumptions may also be rebutted on a proper showing of evidence.

Problems arise when one party already owns a home which is then brought into the marriage. During the marriage, the title remains in that spouse’s name but the mortgage is paid with both parties’ earnings. Or, where one party has a premarital home, the parties are together for a substantial period of time and the property significantly increases in value. Is the appreciation a marital asset or the other party’s separate property? What if one party inherits a home during the marriage?

The answers to these questions are complex and require the knowledge and skill of an experienced Oregon divorce lawyer. If you or any family member are ever in this situation, you need to consult an experienced family law lawyer immediately.

WHAT ARE THE OPTIONS FOR DIVIDING THE FAMILY HOME?

Generally, there are three options for dividing the family home: (1) one spouse buys out the share of the other spouse; (2) the house is sold and the proceeds divided; and (3) the house remains in joint names for a limited period of time and then is sold to the other spouse or is put on the market.

During substantial economic downturns, couples have increasingly turned to the last option. It is often beneficial to wait out a depressed housing market and sell when the conditions are favorable.

DO WE HAVE TO SELL THE FAMILY HOME?

If the family home is the only significant asset in the marriage, the home may need to be sold unless one spouse is able to raise sufficient funds to buy out the other. There are several ways to buy out a spouse’s interest in the family home.

1. One party may be able to buy out the other if they can refinance and qualify for a new mortgage using their own income. Here, the selling spouse should never agree to remain on the mortgage.

2. If refinancing cannot generate sufficient income, the selling spouse may be persuaded to accept an installment note secured by a Deed of Trust on the home. This option is generally a bad idea. If a spouse cannot afford an immediate buyout on the divorce, in the long run this spouse is probably not going to pay all the costs associated with maintaining the home and pay back the installment loan. It is however a good option if one party is liquidating substantial assets or expected to generate a substantial increase in income over time.

3. Buying out the other spouse’s interest in the house with a release or set off of spousal support.

4. Borrowing from a retirement plan to finance the buyout.

5. Offsetting the family home with other assets of equal value. This option is useful where one spouse wishes to retain the home and the other wishes to keep pensions or other retirement assets of equal value.

SHOULD I KEEP THE FAMILY HOME OR EXCHANGE IT FOR OTHER ASSETS?

It is essential to consider the financial as well as legal realities of electing to keep the family home. It used to be common practice where the husband owns a business to suggest the wife keeps the family home and the husband keeps the business. Before even considering whether this is a fair exchange of assets of equal value, one has to consider whether the spouse who wants to keep the house can afford to do so. Often the spouse who has primary custody of the children will want to stay in the house for the sake of the children but this may not be economically possible.

If a spouse desires to stay in the family home, they should estimate housing costs and compare this with their estimated earnings from employment, support and other sources. Housing costs are more than just mortgage and property taxes. One should factor in all household expenses including utilities, repairs, insurance, and the like. The mortgage interest deduction can also be used to lower your costs. If the spouse can afford to stay in the house, you should consider this option.

HOW DO WE DETERMINE THE VALUE OF THE FAMILY HOME?

It is essential to know the amount of equity and financial value of the family home. The equity in the family home is the home’s fair market value less any debts or encumbrances attached to the house, such as mortgages and liens. The fair market value of the home can be assessed by a certified real estate appraiser or by listing the home with an experienced real estate broker to see what sort of offers the property generates.

HOLDING THE FAMILY HOME IN JOINT NAMES.

In the current economic environment, couples often want to hold onto the family home until the real estate market recovers and house prices are on the rise again. Housing markets are cyclical and rise and fall with the local economy.

Generally, the parties will hold the property as tenants-in-common. It is important to obtain an experienced family law attorney in this scenario since there are considerable risks for both parties. A clear plan of action should be included in the Judgment and essential terms should provide for continuing jurisdiction of the court to supervise the sale or any problems associated with the property.

The agreement should clearly specify who is responsible for maintaining the home, paying the mortgage, insurance, property taxes and repairs. The parties should also agree on the time table for selling the house. It is common to link this to the children’s ages and completion of school or a limited time frame of two or three years to allow for housing prices to rebound. In either scenario, the house will then be placed for sale.

CONTACT PAUL F. SHERMAN FOR EXPERT ADVICE ON MAINTAINING THE FAMILY HOME IN YOUR DIVORCE OR OTHER COMPLEX PROPERTY DIVISION ISSUES

We know your have more questions and we have the answers. If you would like to learn more about the disposition of the family home in a divorce, legal separation or any family law matter call the Law Offices of Paul F. Sherman at (503) 223-844 for legal advice, or Contact Us for a free child custody or parenting time consultation.

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About pfs2law

LAW OFFICES OF PAUL F. SHERMAN
This entry was posted in Dissolution of Partnership, Divorce, Family law, Uncategorized. Bookmark the permalink.

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