The “Marital residence” is a term used in divorce law to refer to the property where the couple resided together before the breakdown of the marriage. Since the marital residence is often the most valuable asset and a mortgage is often the largest liability, deciding which party keeps the marital residence can be one of the most difficult decisions a couple will make in a divorce. Unlike a bank account, a house cannot be divided in half. For this reason, we often pay special attention to structuring how the marital residence is accounted for in equitable distribution.
In a divorce, either the parties will agree to sell the marital residence and split the proceeds, or one party will buy the other out. This may require the party doing the buy-out to take out a loan or refinance their existing mortgage. It is uncommon for both parties to continue to own the marital residence after the divorce, but in certain circumstances it happens.
Options typically include the following:
Requiring one spouse to pay for or “buy out” the other spouse’s share
Awarding one spouse exclusive possession of the home for a limited period of time, and requiring the couple to sell the house by a certain date after that
Requiring the couple to sell the house immediately and divide the proceeds
Offsetting the value of the home by awarding additional marital assets to the other spouse.
It is important that the section of the marital settlement agreement addressing the marital residence be carefully considered. There are many terms to consider when dealing with real estate, and the goal of the agreement is to provide clarity to all the parties involved.
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 the marital settlement agreement. 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.
Valuing the Marital Residence: Details and Credibility:
Before deciding what to do with the marital residence, it is essential to assign a value to it. The best solution is to agree upon the method of valuation, and the correct value will fall into place. The parties will sometimes assign a monetary value to marital residence on their own based on what they believe the house is worth from area sales, friends, neighbors and local realtors. When the parties do not agree or need help determining the actual value, attorneys and mediators will look for substantial competent evidence. Getting a market comparative analysis from a neutral real estate professional appraiser can solve the problem for a few hundred dollars. If the parties are lax, they may stipulate to a Zillow evaluation. And, of course, in all cases, the value of the marital residence matters little if the parties agree to sell the home and split the proceeds.
We assume that if the parties do not agree on the value of the marital residence, and who retains it, the Florida court will be the one distributing the marital residence and its associated mortgage.
In the vast majority of the cases, the parties mediate and decide what is the correct equitable distribution. You will probably be the one to help negotiate who gets what assets and what debts. However, it takes two to tango in negotiation. And the best way to negotiate assets and debts is for all parties to have a strong understanding of all the values and of the facts around the residence.
Developing a process rather than outcome to divide:
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 which 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.
A. 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 agreement 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 time frame.
B. 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 the individual will buy out the spouse’s equity. Similarly, it will provide for when and how the spouse who moves out of the home will transfer title. It’s common that one party is waiting for the other to execute and deliver a quitclaim deed.
C. 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.
D. 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. 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.
Refinance Issues:
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 then fails to do so. Too often, there is nothing in the agreement 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.
Whenever possible, it is helpful to 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.
It may be necessary to include in the marital settlement agreement 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. It also may be wise for the parties to execute a quit claim deed and hold it in escrow until the party retaining the marital residence refinances and removes the other spouse from the mortgage so that the non-owner spouse can petition the courts to partition the marital residence in the event that the other party fails to live up to the agreement.
Conclusion:
The details surrounding the valuation and the process of dividing the marital residence can be tedious, but worthwhile in the long run should the parties experience any issues related to the sale or transfer of the marital residence, equalization payments, or removal of the non-owner spouse from the mortgage. The parties will be thankful that many of the common pitfalls are addressed in their agreement should there be a need to take further action long after your relationship has ended.
For further information on dividing the marital residence or for information on Family Mediation, contact Deborah Beylus at South Florida Mediation Services at 561-789-0710 or www.southfloridamediationservices.com.