One of the major decisions that comes up in many divorce or legal separation cases is what to do with the family home. For purposes of this blog article I will consider all of the equity in the family home to be community property. Similar considerations have to be made if the equity is part separate/community property.
The main reason this becomes a major consideration is due to the fact that the equity in the family home is one of the larger assets that must be divided in the divorce. Of course if there are many large assets it makes it much easier to divide the family home equity. As is always true in most family law cases, every case is different. With that in mind here are some basic considerations when it comes to addressing the equity in a family home:
1). Can the spouse afford to keep it? In many cases a couple have created a lifestyle that relies on the joint work incomes to support it. What works well, from a financial point of view, may be impractical if only one spouse is supporting the home. In some cases the spouse can afford the home mortgage but then has a problem in figuring out how to pay the other spouse his/her share of the equity in the family home. It is not uncommon for a spouse, especially one who will have primary care of the children, to want the home. In fact we have a statute in the state of Washington that compels the court to do just that, if (a big if) it is financially viable. If there will be child support this can be a great help in allowing a spouse/parent to keep the family home. But keep in mind that this can change (a parent could lose his/her job or the child could move to the other parents home) and, in any event, will stop at some point. The takeaway here is to do some “number crunching” to see if one spouse (who desires to keep the home) really can do so – not only financially, but will it work in the division of the assets of the marriage.
2). Will there be a need or desire to refinance the home? Many do not realize that even if the divorce decree awards the home to one spouse and makes that spouse responsible for any liens (and underlying promissory note) attached to it, there still are potential issues for the other spouse. The main issue is the fact that the bank is not bound by that court order. In other words they could go after the other spouse if payments on the mortgage are not made by the spouse awarded the home (while not common, it can happen). The more likely issue is the fact that other banks, when the ex spouse not awarded the home, goes looking for a new loan on the new home he/she wishes to purchase after the divorce. The new bank will be aware of the other debt, and the possible consequences if it is not paid, and factor that into their evaluation in a loan application. Knowing this it is not uncommon to address the loan on the family home at the time of a divorce. Sometimes the parties will get creative and require a refinance (or sale if no refinance is possible) in a set number of years – this can allow for the children to finish school and allow for the ex spouse to be in a better financial position to refinance. Just be fully aware of what would have if the refinance is not possible and have specific language in the decree addressing what happens and when.
3). Best to sell now? If, after a full evaluation, it is determined that a sale of the family home will need to take place, strong consideration should be made to do it during the divorce action. This gives you the ability to address any problems in the court family law department. Keeping a family home (as “partners” rather than as spouses) post divorce can be very problematic. I recommend against it in most cases, but if that is what the parties want to do, I always suggest partnership language in the divorce decree addressing ownership and possible sale of the home.
This blog article is not intended to convey legal advice, but only address some of the general rules. Most legal issues, in family law cases, depend on the specific facts. Should you wish to discuss your particular situation with the Law Office of Thomas A. Chillquist, please call or email my office. I am a family law lawyer (divorce attorney) and I represent parties in family law, and divorce, matters in King and Pierce County, Washington, including Kent, Federal Way, Covington, Renton, SeaTac, Des Moines, Fife, Auburn, Seattle, Bellevue, Puyallup, Orting, Tacoma and Mercer Island. Copyright Thomas A. Chillquist