During a divorce, issues related to the marital residence often arise. Whether one spouse keeps the house or both spouses decide to sell, it raises financial concerns about the division of marital assets. Many couples consult a divorce attorney to discuss concerns about divorce and property, and address legal questions that impact their interest in the house.
Who Gets the House in a Divorce?
When a house is part of marital assets, a divorce raises many legal concerns. In some cases, one spouse may want to keep the marital residence, so he or she agrees to buy out the other spouse. This is usually accomplished by refinancing the existing mortgage and placing the new mortgage in the sole name of the spouse who wants to keep the house. However, refinancing may present challenges if one spouse isn’t employed, or if there isn’t sufficient equity in the house to justify refinancing with the bank. In other cases, neither spouse may want to keep the house, so they agree to sell the property to avoid the costs of maintaining two homes. In both scenarios, the financial impact on each spouse can be explained by a divorce attorney who understands state laws governing marital assets in a divorce.
Spouses may agree to maintain joint ownership in the home, deciding that one spouse continues to live in the home until a certain date. While a post-divorce, joint ownership agreement can create challenges, it does present a good way to preserve equity, especially during a declining housing market. With this type of agreement, a divorce attorney can establish rules and timelines to avoid future disagreements when it’s time to sell the house.
If both spouses can’t reach an agreement on who gets the house in a divorce, or what happens to the marital asset, the court may choose to force the sale of the property, regardless of what the parties want to do. The court may also order that the house be put up for auction. If these actions are taken, both spouses will likely take a big hit on the sale price of the home and division of any profits.
Illinois Laws on Marital Assets
In Illinois, marital property is divided equitably by the courts, but not always equally. For purposes of distributing property in a divorce, courts look at what constitutes marital property versus the separate property of each spouse.
According to Illinois laws, all property that qualifies as “marital property” is subject to equitable distribution by the court. Marital property is defined as property acquired by either spouse after the marriage and before a judgment of dissolution of marriage. This includes any separate property transferred into some form of co-ownership between the spouses. Marital or non-marital property is not determined by the name in which property is held.
Regardless of whether title is held by one or both spouses in a co-ownership, like joint tenancy, community property, or tenancy in common, property acquired during the marriage is considered marital property by the court, and legally both spouses have an interest in the property. The marital property and marital obligations, including debt incurred during the marriage, is distributed equitably between the parties.
If one spouse received the property alone as a gift or inheritance, it remains that spouse’s own separate property rather than marital property. In an Illinois divorce, each spouse gets to keep his or her separate property.
In many marriages, spouses commingle marital and separate property, especially when paying for household and children’s expenses. The couple may move into a house that was owned by one spouse before marriage, then begin joint payments on the mortgage, household expenses, maintenance, and repairs. One spouse may put separate money or money from an inheritance into a joint bank account. As common as these situations are, they often create major complications during a divorce. If there is no prenuptial agreement that governs separate property, a divorce attorney may be necessary to untangle the complexities of commingled assets.
Courts often allow reimbursement for contributed property, separate property that was contributed to marital property by one spouse. If a husband contributes a financial inheritance, considered to be separate property, to the purchase of a marital home held in joint tenancy, the husband’s separate inheritance funds convert to marital funds. If the couple divorces, the wife can be reimbursed for her contribution to the marital home.
Courts also allow reimbursement for personal efforts contributed by one spouse to separate property of the other spouse during marriage. For example, if the husband does all the repairs on a home the wife owned prior to marriage, the homeowner spouse may have to reimburse the value of this effort to the marital estate. In either case, the court will only allow reimbursement for contributed property with clear and convincing evidence provided by a divorce attorney.
Why You May Not Want to Keep the House in Your Divorce
While the familial home may have sentimental value, from a financial standpoint, keeping the house is sometimes the wrong decision in a divorce. From payments that are too high to handle on a single income to buying out the other spouse’s interest, keeping the home may create several challenges that individuals are best off avoiding. Understanding these challenges will help divorcing parties make informed decisions in the divorce process.
Payments Can Be too High
One reason keeping the home in a divorce may not be wise is the cost of mortgage payments. Most couples purchase a home with the benefit of two incomes. The monthly mortgage payment is based on what they can afford as a couple. A divorced spouse with a single income may not be able to afford mortgage payments.
Refinance Is Necessary
Once the divorce is complete, the person who keeps the home may need to refinance it to buy out the other spouse. If the financial situation has changed significantly, refinancing may not be possible or monthly payments could be higher.
Determining Value Is Not Easy
In Illinois, if one party keeps the house, the amount of equity in the home as of the date of the divorce must be split. The house will need to be appraised to determine its value. Yet placing a value on a house, unless it is actually on the market, is not always easy. Divorce lawyers often find this to be a serious point of contention in the proceedings. If the home were to be sold, however, the proceeds from the sale would be used to determine each spouse’s share.
Home Ownership Creates Additional Costs
Even if the party keeping the home decides the mortgage is manageable, there are other costs of owning a home. Maintenance, repairs, insurance, property taxes, and similar costs all add up, and the party considering keeping the house must consider these costs when making a decision. Again, changing to one income after the divorce process can limit how much the person can truly afford to spend on the home.
Options for the Marital Home in Divorce Proceedings
Parties have many options when determining how to divide their marital property, but the ultimate disposition of the property depends on whether they agree to a particular option or the court orders it. Understanding the possible options can help the parties determine the best way to handle their home based on their personal financial circumstances.
Any agreement that the parties reach in their divorce case must be reviewed by the family court judge who is presiding over the divorce case. The agreement will not necessarily be approved by the judge, but family court judges do often approve these agreements.
If the parties are not able to reach a decision regarding divorce and property, the court determines how to divide the property. Illinois family courts use the principle of equitable division, meaning that they try to determine a fair way to dispose of the property, but not necessarily equal.
Some options a family law attorney may recommend include:
Selling the Home
One of the easiest solutions may be to sell the home and to split any proceeds between the parties. The benefit of this option is that the parties can downsize so that they will be able to afford smaller, separate spaces. They can also break this bond that continues to tie them together. If the property is sold before the divorce, the parties can avoid additional hassles, such as appraising the property. In some cases, it may be more practical to sell the property at a later date. The parties may have young children that they want to finish raising in the home. The market may be down. The parties may simply decide to postpone the sale until factors change. A Dupage divorce attorney may help draft a settlement agreement that establishes certain terms regarding a future sale.
Buying Out the Other Party
If one of the spouses wants to keep the home, another option is for him or her to buy out the other party. This is often completed by the spouses exchanging other property that adds up to the spouse’s share of the marital home. To reach this solution, the parties must determine the value of the property and each spouse’s share. To complete this transaction, the spouse moving out of the home will likely need to sign a quitclaim deed to the other spouse, getting rid of his or her interest in the home. Additionally, the spouse maintaining the home may need to refinance the property in just his or her sole name so that the other spouse is not obligated to the debt.
Renting the Home
Another option is for the parties to maintain the home for now and rent it out to provide extra income to both spouses. Sometimes the potential rental income is more important to the parties than the home itself. They may agree to rent out the property to a mutually agreed-upon lessee. The rental income may be split between the spouses after satisfying any mortgage payment. In some cases, rental income is used to substitute or supplement spousal support. In other cases, one party may remain on the property and pay rent to the other spouse to satisfy the debt.