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What happens to the house in divorce?

For some couples, the marital home is their biggest asset. In divorce proceedings, the house can be a bargaining chip or a stumbling block.

How does residential real estate fit into equitable distribution? Does it matter if one spouse moves out? What do most divorcing couples do with the house? Let’s explore some of the issues and options in this contentious matter.

The complex matter of the marital residence

The first issue to be addressed is whether the house is in fact a marital asset. If one spouse purchased the home prior to the marriage, it does not necessarily mean it remains their separate property in a divorce. It may be considered to have converted to marital property if the other spouse contributed to the mortgage or home improvements. Even if it is determined to be separate property, the spouse may be entitled to a share of the increase in valuation during the marriage.

Assuming the house is deemed marital property, the disposition of the house may be a central dispute in divorce. There are several possibilities:

  1. One party keeps the house – A spouse who has primary custody (the bigger share of parenting time) often wants to stay in the house. This may or may not be financially feasible, even with child support. Some spouses want the house out of emotional attachment or spite. Many end up saddled with a mortgage they can’t afford. According the real estate site SmartAgents.com, 61 percent of people who retain their homes in divorce end up selling … often at a loss. Before declaring you are keeping the house, it is important to crunch the numbers.

    There is also the issue of equity. A house can’t be split in half. The spouse who retains possession must buy out the other party’s share of equity in the residence. This could be a cash settlement, a trade-off of other assets, or some future consideration.

  2. Both parties keep the house – “Nesting” is a recent trend in co-parenting. Rather than having the kids rotate between two households, the children stay in one residence and the parents take turns living with the kids and running the household. This arrangement is all about stability for the kids, but it’s not for everyone. It can work well as a short-term transition but may not be a viable long-term solution.

    Some couples without children may decide, for economic reasons, to continue living under one roof while the divorce process plays out. You need to be on amicable terms.

  3. The parties sell the house – Some couples agree that neither wants the house (or that neither can afford it on their own). Even then, selling the house is not always straightforward. Do the spouses each get a 50-50 share of the proceeds, or does one spouse deserve a greater share because of their financial contributions? What should the asking price be, and what if the house isn’t selling? These issues need to be addressed (in writing) before the home is listed.

Is it bad to move out of the house?

Some people stubbornly stay in a hostile or unhappy marriage because a faulty assumption. They believe that a spouse who moves out of the marital home loses any chance of getting the house in the divorce. Not true. You do not forfeit your ownership stake by moving out. Nor do you magically win permanent possession by staying. The same issues of separate property and equitable distribution apply regardless of which spouse is living in the home.

However, courts may be swayed by the needs of children or by allegations of domestic abuse. A judge may award the house to one party, with offsets to compensate the other spouse.

Don’t make assumptions

If you think you want to keep the house, you need all the facts to make a sound decision and plan accordingly.  If you are worried you won’t be fairly compensated for your marital share of the house (or if you believe the house belongs solely to you), you should consult a lawyer who deals with these issues on a regular basis. Rajeh A. Saadeh is knowledgeable about residential real estate transactions as well as divorces with complex property division.

 

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