Deciding Which Spouse Gets the House in a Divorce
The division of marital property is a critical aspect of any divorce. Michigan is what is called an “equitable distribution” state. That means if a couple can’t agree on a settlement, a judge will determine how to divide property (including real estate) between the spouses based on what the judge thinks is fair.
After 2008, when the economy plummeted in Michigan, most homes were “under water” – meaning the amount owed on the mortgage was higher than the amount that could be received by selling the home. It was common for a divorcing couple to simply walk away from their house and give it back to the bank, since the house had no value.
Fortunately, the real estate market has finally turned around to some extent, and the value of homes is increasing. In the context of a divorce, the equity (the difference between the home’s fair market value and the outstanding balance of the mortgage) now becomes a significant asset to be divided between the spouses. Even if the house belonged to one of the spouses before the marriage, if there has been a substantial increase in value during the marriage, that increase would be considered an asset to be divided in a divorce.
Three Ways to Deal with the Marital Home in Divorce
Divorce attorneys generally recognize three options when considering what to do with a house in a divorce: the husband keeps it, the wife keeps it, or they sell it. Although that sounds simple, property division is extremely complex. The question of what happens to the family home is often disputed and leads to a long, drawn out battle.
If neither spouse wants the house, it can be sold. Whatever equity remains after paying off the mortgage, closing costs and commissions is split fairly between the spouses.
If one spouse wants to keep the house, he or she can buy the other out at fair market value minus whatever is owed. It is important to discuss this option with your divorce attorney, because it may be possible to avoid real estate commissions and closing costs, since the buy-out may technically not constitute a sale.
The third option is for one spouse to trade his or her share in the equity for other marital assets (investment accounts, art collections, or automobiles, for example).
Family Home in Divorces with Children
In the past it was common for the custodial parent to keep the house in order to cause the least amount of disruption for the children. However, most divorces now involve shared custody arrangements. It still may be advantageous for one parent to retain the home, either for stability’s sake, or to maintain residence within the school district where the children are already established.
Making the Right Property Settlement Decisions in Your Divorce
It is important to avoid making decisions based on an emotional attachment to a house. It may seem important to one spouse to keep the house, but divorce attorneys generally encourage their clients to consider the bigger picture. Financial considerations such as maintenance and upkeep, mortgage, taxes, insurance and utilities may make the house more of a burden than it’s worth. The house may be filled with memories, both good and bad. After the divorce is final, most people eventually want to move on and start a new life. Holding on to a house for sentimental reasons may not be best in the long run.
If you decide you do want to keep your house, or if you simply have questions about how to proceed, a divorce attorney can help you develop a wise action plan to achieve your goals.