Who Gets The House?

"The next time I think about getting married, instead I'll just find a woman who hates me and buy her a house." -Lewis Grizzard

How many people buy more home than they can afford? Lending institution practices allow people to borrow the maximum amount of money that they, as a couple, can barely afford to repay. Then when the couple divorces and suddenly they are trying to pay for two separate households, along with child support payments, what was once a tight squeeze becomes impossible.

Do You Really Want It?

Dealing with who gets the house after a divorce can become an emotional roller coaster ride. You or your spouse, or both, may believe you have to stay in the house until bad memories hit and you no longer want to live there. Whether you want to keep the house, of course, is irrelevant if you can't make the payments. With all of these issues at hand, the marital residence is often one of the biggest concerns in a property settlement. A good matrimonial law attorney will examine your financial ability to maintain the residence before recommending how to handle the situation. This generally involves looking at your income along with any potential child support or alimony payments and debts.

The chart of living expenses will prove very beneficial in determining whether or not you can afford to keep the residence. Completing this form may lead to a stark realization about the consequences of the divorce, but it is much better to know what's possible ahead of time than to fight for two years to get a house you can't afford.

Once you determine whether to keep the residence, several options are available, including the following:

• Sell the home and divide the equity
• Transfer the home to the other spouse
• Transfer the home to the other spouse for a certain number of years ad then sell it
• Deed the home to one side with a cash payment for the equity

Sell the Home and Divide the Equity

If you decide to sell the residence immediately, the settlement agreement should state that it will be sold and the proceeds divided as you agree. One party may receive all of the equity or you may divide as you deem fit. The property should be appraised and placed on the market for the appraisal amount. In the event that you and your ex can't agree upon an appraised value, each of you may select an independent appraiser to value the property. These two independent appraisers can select a third appraiser who will agree on the value of the residence.

After the house is appraised, you should agree on an agent to sell the house. If you can't agree on an agent, each of you can select an agent who will confer and choose a third person to serve as the agent for both parties. Until the real estate sells, your agreement should specify who pays the mortgage payment, taxes, insurance and utilities. The agreement should also require the party living in the home to provide routine maintenance and upkeep. The responsibility for paying the cost of minimal repairs, such as structural, heating, cooling, roofing and appliances, should also be addressed.

The cost of necessary repairs or improvements to prepare the house for sale should be deducted from money received for the real estate, unless one party agrees to bear the cost.

The agreement should also specify that when the house is sold, the following items will be deducted from the gross sales price:

• The amount of the mortgage
• The brokerage commission
• Legal fees related to the sale
• Cost of repairs or improvements
• Cost of sale
• Any other related terms of the settlement agreement, such as the payment of another debt

Transfer the Home to the Other Spouse

If you merely transfer your interest to the other party, the agreement should specify that the transferring party conveys all interest in the residence and agrees to execute a warranty or quit claim deed as part of the settlement agreement. The agreement should also specify who is solely responsible for the mortgage indebtedness on the residence.

Keep the Existing Mortgage

If you and your ex originally signed the mortgage papers together, both parties remain liable for it unless you refinance the property. As a result, if your ex defaults on the mortgage, the mortgage company may look to you for payment of the debt, even though you transferred your interest.

"A lot of people are confused by this issue, but it's simple," says Chris Robbins, vice president of First Commercial Bank in Birmingham. "Regardless of the circumstances, the loan note takes precedence over a divorce decree, and this can affect your credit if your former spouse defaults on the loan.

"It's always better to get the debt refinanced and remove your name from the loan," Robbins says. "People often try to get their names off the note, letting their spouse take it over. If the other spouse does not have the credit to take the loan, though, it must remain in both names."

If one spouse does not pay the obligation, it can cause tremendous hardship and difficulties for the other. This may require a court action to either enforce payment of the mortgage or force the sale of the residence.

Regardless of the situation, this mortgage obligation will continue to show up on credit reports and will have to be addressed in future loan applications. Sometimes, you can handle this by showing the creditor a copy of the divorce decree that indicates the other spouse is responsible for the mortgage obligation.

Transfer the Home to the Other Spouse For a Certain Number of Years and Then Sell It

Specify in the settlement agreement that one party has sole use of the home until a certain time, when it will be sold and the equity divided. This option is common when there are young children and the immediate sale of the residence would disrupt their lives. The wife may be awarded the property for several months or years -- until the children turn 19, complete college or move out on their own -- or the wife remarries.

The settlement agreement must say how long one spouse can use the residence and what events trigger a sale. The agreement must detail who provides routine maintenance and upkeep, as well as payment of the mortgage obligation. If one spouse occupies the home for a long period of time, the parties must decide whether the equity will be capped at its present value or at its value at the time of sale. If one spouse makes all of the payments after the divorce, that party will not want to share the appreciation.

Deed the Home to One Party With a Cash Payment

Under this option, one party pays the other party a specified sum to take over the marital residence. The terms of this payment must be addressed in the settlement agreement, along with the mortgage obligation and the existing mortgage.

Tax Consequences From the Sale of the Home

The tax consequences of selling a home used to be a great consideration in a settlement agreement. To avoid capital gains taxes in the past, you had to reinvest in another home within 18 months to avoid a tax liability. These rules were changed several years ago. Today, an individual can shelter up to $250,000 in profit from the sale of a home without paying capital gains, whether or not you reinvest the money in real estate.