When a divorcing couple owns a marital home, they have several options for splitting it up:

• Sell the home and divide the proceeds: This is often the simplest and most straightforward option. The couple can sell the home and divide the proceeds equally, or they can agree to a different division based on their individual circumstances.

• One spouse buys out the other: If one spouse wants to keep the home, they can buy out the other spouse’s share of the equity. The amount of the buyout will be based on the home’s value and the amount of equity each spouse has in the home.

• Keep the home jointly: In some cases, divorcing couples may decide to keep the home jointly. This can be a good option if the couple has children and wants to continue living in the home together. However, it can also be challenging, as the couple will need to agree on how to manage the home and make decisions about its future.

The best option for splitting up a martial home upon divorce will vary depending on the couple’s individual circumstances. 

Option A: Sell the Home

This Option is the most straightforward route for couples to take and offers a clean break.  The couple must negotiate and decide on the terms of the sale: who is responsible for preparing the home, a budget and timeline for any necessary repairs, how to choose an agent or broker to sell the home, the appropriate listing price, etc.  Once the home is sold, the parties typically divide the home in a pre-determined manner, like a straightforward 50/50 split or using the proceeds to pay off certain debts, repay one or either spouse for monies paid toward the home, put money into a savings account for childcare needs, etc…

Keeping the children in the family home is a key factor affecting the timeline of a home’s divorce disposition

Option B: Spousal Buyout

The second option, a spousal buyout, is typically the most desirable option, but also the trickiest to accomplish.  There are two issues that must be addressed:  First is funding the buyout – a lump sum, trading other martial assets (such as retirement accounts), or additional debt.  For most individuals, coming up with a lump sum to give to a spouse at the time of divorce to cover their share of the home equity is not feasible, but negotiating using other assets or further leveraging the home via a HELOC or loan consolidation personal loan may work. 

The second issue is resolving the home’s mortgage.  Most couples with a jointly owned home also have a joint mortgage.  The mortgage company probably utilized the income of both spouses in approving the loan, so if one spouse leaves the home, then the other spouse is left on a mortgage too big (in the bank’s eyes) for them to hold alone.  Some loans may be assumable, allowing for one spouse to (essentially) re-apply for the existing loan utilizing his or her own credit and income to qualify for the loan in their name alone.  Otherwise, refinancing the loan is a good option but has its downfall with higher interest rates now than in the past.   A final option – the loan indemnification agreement – is discussed below.

If you move out, and your spouse agrees to take on all financial responsibility of the home, you can qualify for a new mortgage after divorce.

Option C: Keep the Home Together

This Option is the trickiest to navigate, but is a good compromise in many cases.  It does not offer a suitable long term solution, but is viable for couples that are low conflict, and one party wants to stay in the home for a limited amount of time.  Sometimes couples decide to keep the marital home until children reach certain milestone ages (like finishing school) or until a spouse can work toward financial independence following a divorce.

First, the parties have to decide if they will keep the home together in name only – meaning both parties will remain on the title and loan, but in reality only one party will own the house, be responsible for it financially 100%, will be able to make all future decisions regarding the home, and will not seek any further financial obligations of the other spouse.  The alternative is that the parties will continue to share the home as co-owners, while only one party will live in the house similar to a tenant renting a home.  In the latter case, the spouse will make fixed payments like the mortgage, similarly to rent, and be responsible for certain other obligations, but major financial decisions like renovations, repairs, and the sale of the home would continue to be joint obligations and rights.  

Assuming the parties agree that one party will be solely responsible for the home and be entitled to live in the home after the divorce, they may enter into a type of indemnification agreement. This indemnity agreement allows for the spouse who moves out of the home but remains on the title and mortgage to be contractually protected against any financial obligations associated with the home.  

Finally, the indemnification agreement serves another valuable purpose in protecting the vacating spouse if he or she chooses to purchase a new home after divorce.  Under recent federal underwriting guidelines, mortgage lenders may remove the first mortgage from consideration, even with their name still attached, as long as there is a divorce indemnification agreement putting the liability for the mortgage on the spouse who took over the home!

Conclusion: Talk to a divorce mediator to find the best option for your family.

There are many considerations in resolving a marital home in a divorce.  Most considerations are financial, but splitting up a home has major family implications as well!  Through mediation, we help guide our clients through the various options and find the best route forward during an otherwise stressful and difficult time.