WHAT HAPPENS TO OUR HOUSE WHEN WE ARE DIVORCED?
For many families in New Jersey, one of the largest financial concerns that a couple faces is their home. During the marriage, many families struggle to ensure that their mortgage and property taxes are paid. This financial concern is not removed when one household is now to become two households and the money earned by the family now needs to be stretched. Sometimes, the family home is the largest asset the family has amassed; pouring a majority of their incomes to sustain a roof over their children’s heads as they grow. In some circumstances, a family may owe more for the home than the current market value of the home and worry about how they will get up from underneath the mountain of debt.
The short answer is that the best way to handle your home really depends on your family’s financial picture.
First, the parties must determine whether their home is considered marital property. In New Jersey, if the home was purchased during the marriage, then it is presumed to be marital property. If one spouse owned the home before the marriage, then it is no longer presumed to be marital property and is instead listed as a separate property owned by one spouse. However, the home could still be considered marital, or the spouse who did not own the home may still have a financial interest in the home. For example, if one spouse owns the home prior to the marriage but during the marriage transfers title to both husband and wife, this is presumed to be a marital gift of joint title to the home. Gifts are considered marital assets so the home would now be subject to equitable distribution.
Assuming the home is considered “marital” or is subject to equitable distribution, we at Arndt and Sutak, LLC advice our clients that typically in New Jersey, divorcing spouses face one of three options when considering how to share the equity or debts associated with the home. All three of these choices will allow the couple to distribute the family home in an equitable way.
Each party is permitted to offer to “buy out” the other spouse's equity in the home. This is typically achieved by applying for a refinance of the marital property. At the time of the closing on the refinance, the selling spouse would receive their equity and remove his or her name from the mortgage, thereby giving up all responsibility and rights connected to the home. A refinance will be necessary in all circumstances where there is a mortgage in both parties’ names in order to remove the selling spouses’ name.
This is not an option in every divorce case however as not ever spouse will be able to get approved for a refinance that will cover the outstanding mortgage, the monthly mortgage payments and/or the additional amount needed to buy the selling spouse’s interest.
Additionally, the buying spouse will also have to assume costs associated with the refinance including a survey of the home, new title costs, real estate lawyer fees and recording fees in addition to the fees associated with the divorce.
Sell the House
Some couples opt for what I like to call the “clean slate” approach, which is to sell the marital home and fairly divide all the proceeds from the sale. For some couples, this is the best solution. However, the downside is that this option is rarely the fastest solution. While the divorce can be finalized before the home is sold, sometimes a sale can lengthen the divorce proceedings. If the divorcing couple cannot agree to another approach (and barring some specific factual scenarios), many Judges in New Jersey will Order that the home be sold and proceeds be distributed fairly.
While not typically recommended by most divorce attorneys, another option utilized by divorcing couples is what we call the “delayed sale.” Essentially, one spouse moves out of the marital home and the parties wait for some specified amount of time before the house is put on the market for sale. This option is sometimes suggested when the divorcing couple has high school aged children who are close to graduation and sale of the house would change their school. Most attorneys will attempt to avoid this option because in order to ensure that the home remains paid and in saleable condition without arguments or altercations often proves difficult for parties who are seeking a divorce because they no longer get along with or cooperate well with their former spouse. Because this option requires one spouse to leave the marital home, but continue to be attached financially to the mortgage obligation, there is real potential concern for impact to credit and inability to obtain closure or move on since there is typically a large financial tie until the house is sold. If parties opt for this agreement, they will still finalize their divorce proceedings and agreements, and once the house is finally sold, the proceeds are divided as agreed in the divorce settlement agreement.
Contact Arndt & Sutak, LLC
Family law, divorce in particular, can be difficult to understand and apply to your circumstances. The attorneys at Arndt & Sutak, LLC have been guiding residents of New Jersey, particularly in Middlesex, Ocean, Monmouth, Mercer, Somerset, Union, Hudson, Essex, Bergen, Hunterdon, Sussex, Burlington, and Passaic Counties for nearly two decades combined. We are here to support and assist as you face these challenging and ofttimes life changing moments. Please call us
now to discuss your options with your home.