WHO GETS THE MARITAL RESIDENCE AFTER DIVORCE? THE ANSWER IS: IT DEPENDS
#WHO GETS THE MARITAL RESIDECE
For many couples, one of the biggest and most difficult issues is who gets the marital residence after divorce. For couples of modest and ordinary means (as compared to affluent couples) the marital residence is usually the main asset, the biggest most valuable thing they own together. And often, saying goodbye to all the memories and cutting loose and losing the house to their former other half is really hard. And it makes sense. If you think about it, buying the house was probably the biggest thing they ever did as a couple. They had to go house-hunting together for months in some cases; they had to obtain bank loans for the mortgage and get qualified – a grueling process for the two of them; they had to buy furniture and deal with maintenance issues throughout their time together. And then there were the good memories. Like the first night they slept in the house as a couple; the first time they brought home one of their kids; maybe decorating their nurseries for their kids together; their first dinner at their dining table…so many sweet little memories (and some not so sweet ones) have likely occurred in this home. Of course it is hard to let go.
Buyout or Sale?
But the thing is that the home is a part of the marital res and like all other joint property (assuming it is a joint property because sometimes it may be separate property in which case forget everything I just said) it is part of the distribution pot. The parties or the courts/lawyers will have to figure out a fair and equitable way to deal with the house and they will have to find an answer to the question: “who gets the marital residence after divorce.”
If you are in a state like California, that implies a sort of fifty fifty split of the value. In New York and other equitable distribution states, this means a “fair” split. (#who gets the marital residence after divorce)
Typically what I have seen happen in New York is that one spouse “buys out” the other spouse. Usually the mother gets the home and she buys out the husband meaning that they get an appraiser to give them the fair market value of the home. It is an intricate calculation but the idea is to get to a point that they have the “net” value of the home. So they have to factor things like the outstanding mortgage etc in getting down to the net. This is the buyout number, this net figure and it this that they distribute in the divorce and it is this that one spouse “buys out” from the other, by paying the other half of the net (or whatever amount is “fair”).
Sometimes, instead of a buyout it is better and easier to sell the home and split the proceeds. The court usually makes the decision and sets conditions for the sale of the house.
Refinancing and Capital Gains
One thing to keep in mind is that after a buyout, the other spouse has to refinance the property to get the former spouse off the deed and mortgage. If not, title remains with both parties and this can clearly present a problem later on in terms of ownership, mortgage liability and future sale. Speaking of which, when you sell a home there is sometimes a capital gains tax which can be enormous and which has to be paid by the seller of the property. The capital gains is paid on the difference between the purchase price and the sales price. So if you bought the house for $100,000 and you sell for $200,000, you have to pay cap gains on $100,000. It my behoove both spouses to deal with this issue at the time of the divorce. They may agree to share the caps gains. Or factor it into the buyout figure, or something. Otherwise one spouse will be disproportionately hit with what could be a massive tax when the home is eventually sold in the future. This may not be “fair.” (#who gets the marital residence after divorce)
more on after divorce residence