April 4

Regarding the Marital Residence in a Divorce

house divorceDivorcing parties often consider the possibility of one party buying out the other’s one-half ownership interest in their marital home. However, I always raise a few “what ifs” if my client is the one contemplating the option of being bought out:

  1. What if your spouse cannot refinance the home into their sole name and release you from the financial obligation to the lender? If they cannot refinance the home, you will continue to be legally obligated to the lender for the balance owed on the mortgage (assuming you are on the promissory note).
  2. What if your former spouse loses their job or intentionally stops paying the mortgage and ends up defaulting on the loan, and you have already moved out of the residence, trusting he or she would continue to pay the monthly payment. Of course, despite the divorce and buy-out, your credit rating will also end up taking a huge hit as a result of the mortgage default.
  3. What if you have difficulty being able to purchase another home of your own because all lenders will review your income as well as your financial liabilities/obligations, and the mortgage balance owed on your former marital home will continue to be part of the lender’s equation.

Due to these considerations and if the occupying spouse is unable to obtain refinancing to buy the other spouse’s interest in the residence, I typically advise my clients that it makes the most sense for divorcing parties to sell the marital residence and equally divide the net proceeds (sale price less the mortgage and real estate commissions and closing cost).