For most families, the home is the biggest single asset they have and the largest source of their net worth, with the possible exception of retirement accounts. The marital home is usually fraught with emotional attachment as well. This is why it is often the primary financial issue causing anxiety and argument during the divorce process. The question most individuals have usually boils down to, “Can I keep the house?” This is a simple question with some very complicated answers.
I. Understanding Marital Property
The first thing to figure out is whether your home is considered martial property. The answer is typically yes. Simply speaking, if the home was purchased during the marriage, it is likely marital property. Florida law defines “marital assets” as “[a]ssets acquired . . . during the marriage, individually by either spouse or jointly by them.” Fla. Stat. 61.075(6)(a)1.a. (2023). There are some additional complexities with the increase in the value of a nonmarital asset (a home that was purchased before getting married) during the marriage, material improvements to the home, and using marital funds to pay off part of the mortgage during the marriage, but that is for another article to discuss (stay tuned). This article will operate under the assumption that the home in question is marital.
II. Factors That Influence Keeping the House
There are multiple factors that come up when thinking about whether you can and should keep the house after a divorce.
Financial situation of both spouses. Simply put, divorce places a ton of strain on your finances. Once you are divorced, two incomes becomes one income, and shared bills become your responsibility, not to mention that the divorce process itself can be costly. The first thing you must ask yourself is whether you will be able to afford to keep the house after the divorce. Will you be able to pay for the mortgage yourself? Will you be able to keep up with the monthly household costs (insurance, utilities, maintenance, repairs, HOA fees, etc.)? It may be helpful to consult with a financial advisor if the answers to these questions are even a little unclear to you.
Mortgage and ownership details. The details of how your home was purchased and how it is owned will impact your whether and how you may be able to keep the house. Are other individuals besides you and your spouse on the deed or the mortgage? What kind or mortgage and loan do you have?
Children’s well-being. In all divorces with children, their well-being should always be the paramount concern throughout the process. How important is it that the children have access to the family home? Does the home provide unique details (spacious backyard, wonderful neighbors, etc.) that help in raising your children? Another major consideration is how important it is to stay within the children’s existing school zones. If both parents move out of the children’s school zones, the children will likely be re-zoned and required to attend different schools. Staying in the house is one way to ensure that school zones won’t be an issue (you can also move to another residence in the same school zone).
III. Options for Keeping the House
There are a few financial options for keeping the house.
Buying out your spouse’s share. If there is equity in the marital home, then that equity is presumed to be marital, and your spouse will likely have a claim to half of it. You are going to have to consider whether and how you will be able to buy your spouse’s share of the equity in order to keep the house for yourself. For example, if the house has a $200,000 mortgage and is estimated to be worth $300,000 (more on the process of determining the house’s value in Part 2), then there is approximately $100,000 in equity in the home. Your spouse would likely be entitled to half of that equity, or $50,000. You and your attorney would need to figure out if and how you could pay that amount to your spouse. You can do it through a cash transaction if that is available to you, but for many families that is not an option. Instead, you may look to other marital assets to offset the equity. One common option is to offer your spouse an unequal portion of your retirement accounts, or to offer to let your spouse keep more than half of his or her retirement accounts. Continuing from our example, if you have a retirement account worth $100,000, all of which is determined to be marital, then you and your spouse each would have a claim to half of that account, or $50,000. You could offer your spouse all of this retirement account in exchange for the marital home.
Refinancing the mortgage. This is one of the trickier aspects of keeping the marital home. Typically, both spouses are on the mortgage. Most lenders require refinancing in order to remove one of the mortgagors from the mortgage. In order to refinance a loan into just your name, you will have to qualify—which typically requires things like adequate steady income, a high enough credit score, etc. If you are denied refinancing, then chances are you will not be able to remove your spouse from the mortgage, and may at that point have to consider listing the house for sale. If you are at all considering this option, we believe it is prudent to start the refinancing process early—even if you cannot begin signing documents, you should have conversations with your lender to see how viable a refinance would be, and then shop around if you believe you may have luck elsewhere. It is not ideal to wait until the divorce is finalized to start looking into your refinancing options. You should start now.
Another consideration with refinancing the mortgage is that a refinance typically triggers a new interest rate calculation by the lender. Since interest rates have been historically low until recently, there is a chance that you will encounter a higher interest rate in refinancing. An increase in interest rate alone can make a mortgage payment go from affordable to unaffordable. There are options to try to circumvent this from happening, which you should speak to a qualified divorce mortgage lender to understand better. Our office is happy to refer you to the appropriate professionals and specialists who focus on refinancing and lending during and after divorces.
There is so much to discuss on this issue, so please come back to read Part 2, in which we will address the legal process for valuing the house and alternatives to keeping the house. If you have questions about any of these issues, we are eager to help you understand better. Please contact us to schedule a consultation.