Common Questions About Divorce and
Real Estate in Silicon Valley
Helpful Tips for Divorcees
Are you getting divorced? Do you worry about what’s going to happen with your joint real estate property – particularly the family home? Should you sell it, buy out your spouse’s share, or have them buy out your share? What are your options?
Below is a summary of the most common questions about real estate and divorce from couples going through this tough stage in their lives.
1. Sell the house now
Selling the house will give you and your spouse the cleanest break from this jointly-held asset. A house may cost a lot of money to maintain. Proceeds from the sale of a family home can be divided appropriately along with other assets in the marital estate, thereby allowing you to select a home that is more in line with your needs and new financial situation.
Deciding on selling depends on your answers to the following questions:
• Does it make sense to hold the house jointly with your Ex?
• Can you keep paying mortgage and maintenance?
• How long would you live in the house if you keep it?
• What or how much would you give up to keep it?
• Are you willing to sign up for any tax consequences if you’d keep it?
• What is the current fair market value of your home?
Make sure that you do not overestimate its value and ask a realtor to perform a comparative market analysis aka CMA.
A comparative market analysis is an examination of the prices at which similar properties in the same area recently sold. As a realtor, I always perform a comparative market analysis for my clients to help them determine the best price to list their home and sell it for top dollars.
Often, a spouse finds that he or she doesn’t have the funds to qualify for a mortgage and maintain a home. If you’re struggling to decide, ask yourself, “Would I have bought this house if I were single?”.
2. One keeps the house and buys out the spouse's share
If it makes financial sense for one of you to keep the house, be sure you both look at this from every angle. The one who is keeping it will effectively be buying the second half of the house from the other spouse. This should be treated like any other real estate purchase: get a home inspection, complete a title search for any unknown liens, and negotiate any imminent major repairs. That is what any prudent buyer would do.
If you’re keeping the house and buying out your spouse's share, you should refinance into a new mortgage loan, meaning you should be qualified to apply for the loan application separately and pay the refinancing fees along with the risk of paying higher interest rates. In that case only a refinance by the spouse keeping the house, in their name only, will relieve the surrendering spouse of debt responsibility by putting him off title.
3. One keeps the house and doesn't buy out the spouse's share
Remaining in your current mortgage and ensuring that your ex-spouse keeps up with the mortgage payments is not the best configuration. This is risky for obvious reasons: your credit score is tied to the mortgage and a default could be catastrophic.
The both of you can ruin your credit score fast if one of you takes the title but both of you are still on the mortgage. And if the spouse who’s keeping the house isn’t able to make the mortgage payments, your credit score will also be negatively affected.
If you and your ex-spouse agree, you don’t want to sell the home and hold off selling it so that your children can stay and live there until they’re mature enough to move into their own. If you cannot buy out your ex, then you can keep and stay in the house. But the ex who moved out is stuck on the home loan – which means they likely won’t qualify for a new home mortgage and will not be able to buy another house until you move out the property.
Always remember, in the eyes of mortgage lenders, you remain married until you sell the house or refinance. In today’s volatile market, that’s not always an option.