Dividing the family home can be one of the most challenging parts of a divorce. For many couples, their home is their single most valuable asset, and so their financial wellbeing is tied up in their real estate. However, dividing a home is more technically and emotionally demanding than dividing a bank account.
The three main options
Typically, a divorcing couple has three options for their family home:
- Sell the home and split the profits according to the terms of their divorce settlement
- Keep the home as co-owners, perhaps renting it out
- One spouse keeps the home and buys the other’s share
The first of these is the easiest in some ways, but of course it depends on finding a buyer, and it requires each of the divorcing spouses to find new places to live. The second has its advantages, but it requires two people who just got divorced to continue as business partners.
The third option can be a good choice for some divorces, particularly when divorcing parents want to minimize the disruption to their children’s lives. However, this option can be technically and financially challenging.
Effects of the market
As with any real estate transaction, the state of the housing market has a profound effect of the outcome when dividing a home in divorce.
Here in Athens, home prices have been rising fairly steadily. This means selling the home could bring a nice profit, but it will also be more difficult for the ex-spouses to afford new places to live.
If one spouse wishes to stay in the home and buy out the other’s share, they will have to base their price on the current market value, and that could mean coming up with a lot of money. To manage this, some divorcing couples may negotiate the purchase price along with the rest of their marital property division. Others take out a new loan to finance the buy-out. And this brings up another important point: interest rates.
Interest rates
As part of its efforts to keep inflation under control, the Federal Reserve began raising interest rates a few years ago. This followed an extended period when rates were at historic lows. As a result, many people who bought homes 10 or 15 years ago don’t want to give up their low rates.
This creates complications for the third option we discussed above. Typically, the spouse who wants to stay in the home will get a new mortgage in their name alone. But, if they took out a mortgage at a low rate, they may not be able to afford a new mortgage at a higher rate.
Some divorcing couples have found ways around this problem. For instance, some work out a lease-back arrangement, in which one spouse sells the home to the other spouse, but continues to live in it and pay rent to their ex.
Others choose the second option, renting out the home as an investment property, or even continuing to live in the home as housemates.
The bottom line is that, when dividing a home in divorce, homeowners need to balance their interests against the market realities. They may have to get creative in order to find a solution.
