When spouses get divorced, often one of the largest issues, if not the largest, is what happens to the marital home that is jointly titled in both spouses’ names. While there is the option of keeping it in both names after the divorce, this is ill-advised and almost never happens in practice. Instead, the goal is to get the house into one spouse’s name, or if neither spouse wants it, to sell it.
If both you and your spouse do not agree to sell the house or are not sure yet if you want to sell, it is advisable to have the house appraised before discussing who will keep it. If your spouse and you agree on an appraiser, recommended by a friend or your attorney, you can share the cost of the appraisal, saving both of you money. However, in some cases, each of you will get your own appraisal and base the value of the home off of the average of the two. If the spouses can’t agree, the court may decide the value or order a third, neutral appraisal.
Once you have decided on the value of the house, you can determine the amount of equity (the value less any outstanding encumbrances, such as mortgages). How you divide the equity will depend on the overall divorce settlement. If one of you wants to keep the house and there are other assets that offset the equity in the house, your spouse can keep those assets and you can keep the house. If the spouse keeping the house cannot afford to pay the other spouse his share of the equity, or his share is not offset by other assets, that spouse may consider issuing a mortgage to the other spouse or by using an equitable interest notice. For these, it is best to consult with your attorney.
Apart from dividing the equity, there is the issue of refinancing the mortgage. If both spouses agree to transfer title to one spouse’s name, the spouse who will keep the house should attempt to refinance the mortgage into her name only. This relieves the other spouse of liability for the mortgage loan and also frees up money to pay the other spouse for his interest in the house. In property settlement agreements, there is usually a provision giving that spouse a set period of time, usually 30 to 90 days, to refinance the property, and mandating that if the refinance does not occur by the deadline, the house will be listed for sale.
It is possible for spouses to transfer title to one spouse only and keep both names on the mortgage, though this is not advisable for the spouse who is not keeping the house. Not only will he face liability if the mortgage is not paid, but being on the mortgage may also affect his ability to take out other loans.
However, some well-meaning spouses will agree to stay on the mortgage. In this case, the mortgage company cannot enforce your mortgage’s due-on-sale clause, which requires the entire mortgage to be paid if an ownership interest in the property is transferred. This is because federal law prohibits the enforcement of due-on-sale clauses upon transfers between divorcing spouses.
Finally, if neither spouse wants to or can afford to keep the house, it can be sold. This is usually straightforward, however issues can arise if the house is underwater or if there are outstanding liens that complicate the sale. You and your spouse should also try to agree on a realtor to avoid having to spend legal fees for a judge to decide that issue, and you should agree to follow the realtor’s suggestions as to prepping the house for sale, setting the listing price, and making reductions to the listing price.
If you are in need of more information or want to consult with one of our attorneys, please contact the attorneys of Petrelli Previtera Schimmel, LLC at (215) 523-6900.