For many people going through a divorce, keeping the marital home is an important goal. The home may provide stability for children, allow them to remain in the same school and community, and avoid another major change during an already difficult time. It may also have significant emotional importance after years of living there.

But wanting to keep the house and being able to afford to keep it are two different questions.

When considering whether to retain the marital home after a Massachusetts divorce, it is important to look beyond the home’s current equity. The mortgage, refinancing requirements, property taxes, insurance, maintenance, repairs, and the financial impact of buying out the other spouse all need to be considered.

How Much Equity Is in the Marital Home?

The first step is usually determining the value of the home and the amount of equity.

Home equity is generally the property’s value minus the debt secured by the property. For example, if a home is worth $800,000 and there is a $300,000 mortgage balance, there is approximately $500,000 in gross equity before considering potential costs of sale or other adjustments.

The parties may agree on the value of the home or obtain a professional appraisal. Once a value has been established, the equity can be considered as part of the overall division of marital property.

Massachusetts follows an equitable distribution system. This does not necessarily mean that every asset, including the marital home, will be divided exactly 50/50. Under Massachusetts General Laws Chapter 208, Section 34, the Court considers a number of factors in determining an equitable division of the marital estate.

How Does a Buyout Work?

If one spouse wants to keep the home, that spouse may need to compensate the other spouse for his or her interest in the property.

That does not necessarily require writing a check for half of the equity. The marital home is generally considered along with the parties’ other assets and liabilities.

For example, one spouse might retain more of the equity in the marital home while the other spouse receives a greater share of retirement accounts, investment accounts, savings, or other property. Depending upon the circumstances, there may be a number of ways to structure the overall property division.

It is important, however, not to assume that assets with the same stated value are necessarily financially equivalent. A dollar of home equity may have different financial or tax consequences than a dollar held in a retirement account or another type of asset.

What Happens to the Mortgage?

This is an issue that can sometimes be overlooked when a spouse wants to keep the marital home.

Transferring ownership of the property and removing someone from the mortgage are two different things.

A divorce judgment or separation agreement can require one spouse to transfer his or her ownership interest in the property. It cannot, however, require the mortgage lender to release that spouse from responsibility for the loan.

If both spouses signed the mortgage, the spouse retaining the home will often need to refinance or otherwise satisfy the lender’s requirements to remove the other spouse from liability by a process known as assuming the mortgage.

Simply signing a deed transferring the property does not necessarily eliminate mortgage liability.

Can You Qualify to Refinance on One Income?

Refinancing can be one of the biggest obstacles to keeping a marital home after divorce.

During the marriage, the household may have relied upon two incomes to pay the mortgage and other expenses. After divorce, the spouse keeping the home may be responsible for those expenses with substantially different household income.

A lender may consider income, credit, existing debt, support obligations, interest rates, and other financial circumstances in determining whether a spouse qualifies to refinance.

It therefore makes sense to investigate refinancing early rather than agreeing to keep the house and discovering afterward that refinancing is not possible.

What Will It Actually Cost to Keep the House?

The mortgage payment is only part of the cost of home ownership.

Before deciding to keep the marital residence, consider the full monthly and annual costs, including:

• mortgage payments;
• real estate taxes;
• homeowners insurance;
• utilities;
• routine maintenance;
• landscaping and snow removal;
• condominium fees, if applicable; and
• anticipated major repairs, such as a roof, heating system, windows, or other significant expenses.

A house that was affordable while the parties were married may not be affordable when those same expenses must be paid from one household’s post-divorce income.

 

 

Will Keeping the House Leave You “House Rich” and Cash Poor?

Another important consideration is what you may have to give up to keep the home.

Suppose a spouse uses a substantial portion of his or her share of retirement funds, investments, or savings to offset the other spouse’s interest in the house. That spouse may succeed in keeping the home but have significantly fewer liquid assets available for emergencies, retirement, college expenses, or other future needs.

This does not necessarily mean keeping the house is a bad decision. It means the decision should be evaluated as part of the entire financial settlement rather than based solely upon an emotional desire to remain in the home.

What If I Cannot Refinance Right Away?

In some divorces, the parties may agree that one spouse will remain in the home even though an immediate refinance is not possible.

If so, the agreement should clearly address what happens next. Among other things, it may need to establish:

• a deadline for refinancing;
• who is responsible for the mortgage, taxes, insurance, repairs, and other expenses;
• whether the spouse remaining in the home receives credit for payments that reduce the mortgage principal;
• what happens if refinancing is unsuccessful;
• when the property must be listed for sale; and
• how the eventual sale proceeds or changes in equity will be divided.

Leaving these issues unresolved can create disputes years after the divorce has otherwise been completed.

There are also tax consequences to consider. If you take longer than six years to buy out the former spouse’s interest in the marital home, the I.R.S. may consider it a taxable event rather than a nontaxable transfer of assets pursuant to a divorce.

Does Having Children Mean I Should Keep the House?

Parents understandably want to minimize disruption for their children. Remaining in the family home may allow children to stay in the same school, neighborhood, activities, and community.

Those are legitimate considerations, but they should be weighed against the financial reality of maintaining the property.

Keeping children in their existing home may provide stability, but financial instability caused by an unaffordable mortgage and household expenses may create different problems.

In some circumstances, the parties may agree that one parent and the children will remain in the home for a specified period before the property is sold. Such an arrangement can provide short-term stability while recognizing that keeping the home indefinitely may not be financially realistic.

Should I Keep the Marital Home?

There is no single answer that works for every divorcing family.

Instead of simply asking, “Can I keep the house?” it may be more useful to ask:

“Can I comfortably afford this house after the divorce while still meeting my other financial needs?”

That analysis should include the cost of the buyout, the ability to refinance, monthly carrying costs, anticipated repairs, available income after divorce, and what other assets may need to be given up in order to retain the property.

The marital home is often both a financial asset and an emotional one. Making a decision about whether to keep it requires considering both, while making sure that the ultimate arrangement is financially sustainable.

If you are considering divorce and want to understand your options for keeping the marital home, selling it, or structuring a buyout, an experienced Massachusetts divorce and family law attorney can help you evaluate the home as part of the overall division of the marital estate and develop an appropriate strategy based upon your particular circumstances.