Divorce Decisions Regarding Real Estate – Questions You Must Ask - Part 1 of 3

In working with clients, I find that these are typical issues and concerns when it comes to matters of divorce and real estate decisions. 

1.        What are the key factors about real estate and divorce that someone divorcing should be aware of?

·         Identify of the type of real estate and the type of ownership interest you have in any properties.  Do you own a primary residence?  What about a vacation home or investment properties in addition?

·         What is the ownership history of your real estate? How is the title held?  Determine if it is marital (owned jointly) or separate property (property owned by one party prior to the marriage and kept in their name is separate property, although they may have to split any gains in value that have occurred during the time of the marriage.)

·         How long have you held these properties?   This is necessary to know in figuring capital gains taxes and possibly state taxes.

·         What debts, such as loans and tax liens, does the property have?

·         What are the plans you must make to pay for and maintain the real estate during the divorce and afterward?  Don’t forget to calculate the costs of any pending repairs, taxes and insurance.

2.       What are the questions people need to ask themselves about when making decisions about their real estate matters?

·         Should I sell the family home or other properties?

·         Do I keep it until the children are grown?

·         Should I keep the home and buyout my soon to be ex-spouse, or vice versa?

·         Can either of us afford to keep it after the divorce?

·         What are the long term consequences of keeping the house?

3.       What are the most common choices and the pros and cons of each?

A.) Selling outright and splitting the equity:

     Pros – *Divides assets now.

              *Get the greatest capital gains exclusions at this point

                ($250K single vs. $500K married)

      Cons - *Not a sellers market right now.

              *May have to take loss

              *May be upside down in the mortgage right now –

                you owe more than the property is worth.

B.) Refinance and buy out the others interest:

      Pros – *Divides equity now

              *Rates are at historical lows

      Cons - *May be difficult to qualify (especially on one income) 

              *Child support and alimony may be viewed as stable

                income if received for at least 3 months and likely to

                continue for at least 3 years.

              *Best to qualify with both incomes, however, then both      

                parties are still liable on the mortgage.

C.) Use a Property Settlement Note:

      Pros –*May be best option if you can’t qualify to refinance and

                one party wants to stay in the home.

              *Allows time to pay out over a period of time on this  

                portion of the settlement.

      Cons –*If the owing spouse files for bankruptcy you may not 

                collect what’s owed to you.

              * Same situation if the spouse living in the house loses it in

                foreclosure, then the property would no longer act as

                collateral for the balance owed on the note to you.

Don’t miss the next article in this series where we will discuss questions such as:

·         What is the single biggest mistake that comes to mind when you think of divorce and real estate?

·         Does the divorce decree release the other party from liability of the mortgage?

·         Ways to deal with the mortgage liability issues.