Financial Guide: The Marital Home

1. Introduction

2. Psychological Warfare

3. Property in General

4. Maintenance / Alimony

5. Modification

6. Specific Assets

7. The Marital Home

8. The Family Business

9. Tying it All Together

10. Post Tax Outcome

11. Maintenance for Property

12. Closing Thoughts

13. About the Author

The Marital Home

I’ll start with that staple of the American dream, that item which more than any other tangible thing symbolizes family life, the bricks and mortar of each couple’s shared lives. I am of course referring to the house, which, if you are in the great majority, you and your wife own together.

I was not simply waxing poetic in my opening sentence. The associations and emotions which often attach to this piece of real estate can create irrational complications, arguments whose roots are less economic than psychological. Emotions aside, however, there is the often considerable economic significance of this asset.

For many if not most couples, their equity in the marital home is their most valuable single asset. Fortunately I can say that the clients of Cordell & Cordell are for the most part actuated less by the symbolic, the non-economic factors, affecting such assets, then are their spouses. That is not to say that my clients handle their divorces with the dispassion of a Mr. Spock. (In fact as to some issues, my clients are intensely emotional. These issues I discuss in my guide relating to custody.)

As to the marital home, the fact that you are reading this guide suggest to me that you are ultimately likely to do the rational thing, whatever that is.

By contrast, and I am generalizing here, wives, particularly mothers, too often assume reflexive positions respecting the marital home as though they are barricaded in a ROTC building during a circa ’68 campus sit-in. I can almost hear chanting, “Hell no, I won’t go!”

In fairness however, where children are involved and my client is not seeking primary custody, he is often amenable to mom and the kids staying in the marital home. This minimizes disruption to the kids during what is already a horrendous experience for them. They at least can know the same home, neighborhood and school. (Incidentally the logic is the same if dad is seeking primary custody – then mom must go).

I will add here that the court as well typically prefers that the children continue to reside in the marital home when practical.

“How then,” you are probably wondering, “can a guy safely allow his wife to stay in the marital home?” The most obvious possible solution before the court is to order her to refinance the property thereby removing your name from all the relevant documents.

However, the court lacks jurisdiction to simply order your name off the loans. To refinance, your wife must go through the complete loan process and qualify for the loan as a new purchase would. Unfortunately, as you might expect, this is often impossible.

Even if your wife has a good job, if you are like most couples, you needed both incomes to qualify for the loan that put you in your present home. Obviously this prospect disappears entirely if your wife earns nominal or no income. Another more direct method, assets permitting, is for your wife to simply pay off the note from her share of the marital proceeds. A variation on this approach would be for the wife to reduce the debt with her marital monies to a level for which she could qualify on a refinance.

Both approaches likely would require substantial liquid funds. Many couples simply do not have the $50,000+ lying around during a divorce. Furthermore, harsh tax consequences may be triggered by such a move. Finally, even if such funds are available, is this their best use given the present crisis and its attendment costs and uncertainties?

Now let’s return to the judge’s conundrum. In the case at hand, you will recall, the judge is confronted with a mom expressing a desire to continue to live in the marital home with her two school age children. (We are assuming here there is no custody dispute). Mom’s lawyer will repeat like a mantra mom’s power points connecting the kids and the house: home, friends, neighborhood, school (otherwise known as the HFNS incantation).

However, that the court’s preference regarding mom staying in the home is predicated primarily on two key conclusions. If the court rejects either of these the house would be either ordered sold or transferred to dad. The first is that such an arrangement is in fact in the children’s best interest. A variety of issues may be raised on this score – the condition of the house, the quality of the neighborhood, the quality of the schools, etc.; may, among other evidence, militate against continuing such an arrangement.

Though tied to the second basis, you may also attempt to show the court that the concomitant expenses would require an unacceptably large portion of the funds otherwise available for the kids. Another factor trumping mom’s desire to stay in the house despite its putative or real benefits to the children regards its practicality. As suggested previously, it must be feasible given the financial circumstances of the parties.

As with maintenance analysis, the court recognizes that where there was once one household, now there will be two. Yet, the latter must subsist on the resource levels required of the former. There are simply too few dollars available. Therefore, the hard monetary reality of divorce many times necessitates a sale of the marital home.

Such impracticalities could relate to any of a variety of financial circumstances. For example, the existing financing may balloon in the near future or such a provision would require mom to refinance or face possible foreclosure (the courts will not require an ex- husband to refinance his wife’s house.) In this scenario, the court would presumably recognize the futility of awarding the house to mom only to see her lose it in foreclosure 2 ½ years later, not to mention the waste of the parties equity that accompanies a foreclosure sale.

Another common impracticality in such cases concerns the equity in the marital home. Its not unusual for such equity to represent 80% of the parties’ total net worth. This can be a serious complication at a time when two households are vying for too little funds. Both likely face a cash flow crisis. Mom cannot gainsay her budgeting shortfall. Dad needs a nice place to live since the kids will be with him at least 10 days per month.

Is it unreasonable for him to insist on sufficient funds to buy a house himself?

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