Although the marital home is usually the most valuable asset in a divorce case, divorcing couples and their lawyers can be surprisingly casual in its treatment in a property settlement or divorce judgment. Similarly, the mortgage on the marital home is often the biggest shared liability of a divorcing couple, yet little thought is given to securing settlement or judgment terms that will protect a spouse who relinquishes possession or ownership of the home in the event that the home is not sold or refinanced as agreed or in a timely manner.
The following suggestions may help a divorcing couple avoid problems if one spouse keeps the marital home after the divorce.
Deadlines for a Buyout or Refinancing
If one partner will be keeping the marital home, the judgment will ideally set forth a date by which that partner will have refinanced the home to remove the other spouse from any financial obligation, and will buy out the other spouse's equity. Similarly, it will provide for when and how the spouse who moves out of the home will transfer title.
Delay for the Benefit of the Children
Particularly when children are involved, a divorcing couple may seek a way to permit one spouse to stay in the marital home after the divorce even though it will not be possible to refinance the home until a later date. If possible, this should involve the parties agreeing to the value of the home, or stipulating to an appraisal, with the spouse who is going to stay in the home buying out the other spouse's interest.
In this ideal scenario the spouse who stays in the home will work with the mortgage financing company or refinance the home, such that the other spouse is removed from any mortgages, liens, or other financial obligations relating to the home.
Sometimes spouses will agree that one spouse can remain in the home subject to contingencies, such as "until the minor children reach the age of eighteen", with the home to be sold and equity divided at a later date. Sometimes there are additional contingencies, such as a provision that the agreement ends if the spouse who remains in the home remarries or cohabitates with somebody.
Any such agreement should make clear how the equity is to be determined and divided when the home is ultimately sold, taking into consideration any improvements that may be made subsequent to the parties' divorce. It should also make clear how the costs of house payments, taxes, repairs and maintenance of the home are to be allocated between the divorcing couple, and what remedies are available in the event that a spouse fails to meet those responsibilities.
Division Upon Remarriage or Cohabitation
Sometimes it is hard to avoid a provision requiring that the spouse who retains the home either buy out the other spouse, or move and sell the house, upon remarriage or if a new romantic partner moves into the home. It is understandable why one ex-spouse who is helping to support a family in the marital home might want a similar provision that applies in the event of cohabitation - nobody wants to feel like they are paying to subsidize the lifestyle of their ex's new boyfriend or girlfriend.
With due consideration for those concerns, such a provision can sometimes cause more trouble than it is worth. The ex-spouse who retains the home may have a new romantic partner stay at the home several nights per week - whatever they can get away with that is just short of "cohabitation" - and will put off marriage in order to avoid having to sell the home. The ex-spouse who did not retain the home may be driving by each night to see whose car is in the driveway. Things can get ugly.
Depending upon the personalities of the divorcing couple, it may be better to agree to a fixed term of months or years during which the expenses will be shared, followed by the sale or buyout of the home.
Alternatives to a Deed
Depending upon state law, it may be possible to include in the judgment of divorce language that permits the judgment to be recorded in lieu of a deed, in the event that the spouse who is giving up any interest in the house later refuses to execute a deed.
If such a provision is not possible under the laws of your state, ask your lawyer what similar provision you may be able to include which would provide a similar level of protection, ideally without your having to return to court.
If the agreement is that the home be sold, with the equity divided between the divorcing spouses, things should be relatively easy. Sometimes a divorce judgment will leave possession of the home in the hands of one spouse, with that spouse also being responsible to list, show and sell the home. The other spouse may be obligated to pay part or all of the mortgage, and to contribute to the upkeep and maintenance of the house prior to sale. Sometimes the spouse who retains possession will be very slow to sell the home.
It is thus wise to try to include language in the divorce judgment describing what steps each spouse is expected to take to facilitate the sale of the home, a timetable for the sale of the home, and provisions for what will happen if the house is not or cannot be sold within a specified timeframe.
The biggest problems seem to arise where one spouse receives the home and agrees to refinance the home to remove the other spouse's name from the mortgage, but fails to do so. Too often, there is nothing in the divorce judgment that specifies a date by which the house is to be refinanced, or what will happen in the event that the spouse who receives the home is unable or unwilling to obtain a new mortgage.
It is not particularly unusual for the spouse who moved out to execute a quit claim deed in favor of the spouse who receives the home, giving that spouse sole title, but to then be unable to get a mortgage to buy a new home because the old mortgage has not been refinanced. Or, worse, where the spouse who remains in the home stops paying the mortgage and the home goes into foreclosure, with the missed payments and foreclosure proceedings appearing on the innocent spouse's credit report.
Get the refinancing issues worked out before the divorce is complete, such that you at least know that the spouse who will receive the home will qualify for a mortgage sufficient to refinance the property.
Include in the divorce judgment any desired provisions setting a timetable for refinancing, perhaps with the requirement that the home be sold and the proceeds applied to any joint encumbrances if the home is not refinanced by a specified date.
Include a provision describing remedies available in the event of any default or foreclosure which occurs prior to the refinancing of the home.