We don’t have to tell you that Southern California’s real estate prices are much higher than most parts of the country. Here in Los Angeles County, we have some of the highest home prices in the nation. For example, a simple three bedroom, two bath, 1,539 square foot home in Sherman Oaks can go for around $850,000 as of this writing.
In contrast, a four bedroom, two bath, 1,744 square foot home in Buffalo, New York goes for about $69,900 – huge difference! If you want to have fun with the numbers, you can compare real estate in LA to other parts of the country on sites, such as Zillow and Realty.com.
If you are getting a divorce in Los Angeles County or one of the surrounding areas, there’s a good chance that your marital residence is one of the biggest assets in your marriage, if not the BIGGEST asset, especially if you have equity in the property.
If you have equity in the house, deciding what to do with it will be one of the most important decisions you make in your divorce. If your house is upside-down (the loan is more than the house is worth), you’ll still need to figure out the best solution because the house a major liability.
Making the Best Decision
For some couples, deciding what to do with the marital residence is a piece of cake, but for others it’s a complicated matter. If the house is the couple’s most valuable asset, they must tread carefully. One issue is emotional attachments. Some people are very attached to their homes, especially if they’ve remodeled them, lived in them for many years, or raised their children in them.
If you have doubts about what to do with the house, you will need to take several considerations into account, such as:
- Is there equity in the house? If so, how much?
- Do you have another asset that can be traded for the house?
- Can the spouse who wants to keep the house afford it?
- Can the spouse who wants to keep the house qualify for a mortgage in their name alone?
- Does the house need a lot of repairs?
- Where will the children be living?
- What are the tax implications?
First, we want to take a look at who owns the house. Did you both buy the house after you got married? If both of you took out a mortgage after the date of marriage, the house would be considered “community property.” Meaning, the house is marital property and therefore owned by both of you. But, if only one spouse’s name is on the title and mortgage, it can complicate things and the house may be considered separate property. In some cases, though, this presumption can be overcome but it’s difficult.
If the house was acquired during the marriage by ONE spouse as a gift or an inheritance, then the house would NOT be community property. It would be “separate property” and therefore not subject to division in the divorce. In this situation, the house would only belong to the spouse who acquired it through a gift or inheritance.
Usually, a house is considered “separate property” when it was acquired beforethe marriage. However, things can get sticky when the spouse who is not on the title pays the mortgage or contributes to it, or puts money into improvements. When this happens, especially in the case of a long marriage, the spouse who is not on the title can certainly have an interest in the property.
Should You Sell & Divide the Profits?
In general, the best way to handle a marital residence is to sell it and divide the profits down the middle. In many divorces, this is the most reasonable and logical option, especially when neither spouse can afford the mortgage by themselves. Another good option is a buyout, but this only works when one spouse can: 1) afford the mortgage on their own, and 2) qualify for a mortgage by themselves.
For a spouse to buy the other spouse out, they have to give their soon-to-be ex their share in the property. To do this, the spouse who is keeping the house must be able to refinance the home in their name alone and pay their spouse their share. The spouse who is walking away must also be removed from the mortgage.
If you wish to take full ownership of the marital residence, ask yourself:
- Can I qualify for a mortgage in my name alone?
- Can I afford the monthly mortgage payments?
- Can I afford the insurance?
- Can I afford to maintain the property?
- If there is a major repair, can I afford it?
- Can I afford the utilities?
- Can I afford the property taxes?
- Would I be in a better financial situation if we sold the house, split the profits, and I moved into a more affordable place?
You Can’t Make an Emotional Decision
When couples are deciding what to do with the marital residence, they have to leave emotions out of it. Deciding which spouse gets the home isn’t about who wants it more, it’s about money – mortgage responsibilities, taxes, upkeep, and affordability. For example, you wouldn’t drive around a Mercedes S-Class Sedan if all you could afford is a Honda Civic.
In a divorce, you have to have the same mindset about a house as you would a vehicle or another major financial decision. Whether it’s a car, college tuition, health insurance, or a house, you have to make the decision that makes the most financial sense. You can’t decide based on emotional attachment alone. If you treat it like a business decision, you’ll be able to reach the best possible solution.
Related: Tips for Negotiating a Divorce Settlement
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