As I discussed in my previous blog Divorce and Real Estate : An Unfortunate Combination, it is critical for divorcing couples to engage a realtor from the outset. Engaging with an agent who has assisted several couples previously through this process is just as, if not more, important to reaching a resolution.
Often the agent assumes several roles for their divorcing clients: mediator, financial adviser, as well as a real estate professional. Since the primary residence is often the largest asset within the community property, there are several aspects to be considered.
First, should the house be sold? That decision isn’t as straightforward as it may seem. Is the home considered joint property? What are the financial resources of the divorcing couple? Are there school aged children involved? If so, might it make more sense for the custodial parent to remain in the primary residence for the foreseeable future? Of course, circumstances may require that the home be sold particularly if one spouse can’t afford the total cost of the home including mortgage, taxes, neighborhood association fees, etc.
Second, if the house is to be sold, for how much? Once again, there is more to consider here than meets the eye. Especially if one spouse is planning to buy out the other. Your realtor should advise you that in addition to getting an appraisal, a home inspection and a termite company would be prudent. This way the value of the home can be better assessed by taking into account what repairs may be called for. Now the equity in the home can calculated. If the house is determined to be joint property, then each spouse is entitled to 50%. Should one or the other have owned the house prior to the marriage, that spouse could be entitled to 100% of the equity. Keep in mind that the equity in the home doesn’t penalize you with respect to financial aid unlike cash or other types of investments. There may also be capital gains consequences as well since the exemption is reduced to $250,000 from $500,000 following a divorce.
Third, if neither spouse is buying the other out, this is when your realtor can really make the most difference. Divorces are often rife with emotional and financial distress. Your realtor should not only facilitate the sale of the home, but they should also guide their clients to cooperate openly and compromise where appropriate. Now mind you, this is often not possible in particularly acrimonious breakups. But an effective and experienced realtor can provide the guidance and coordination to get their clients to their ultimate goal: the best dollar for the house. Part of that guidance would be to caution the couple against bringing attention to the fact that the sale of the home is occurring as part of a divorce. Being aware of this may cause potential buyers to negotiate more aggressively. Some telling clues are having only one wardrobe, male or female, in the closets. Family photos or portraits which clearly are missing one spouse or the other.
In the instance of one spouse buying the other out of the home, the realtor can also assist the spouse in finding lender options for a refinance. This may be further complicated by the fact that one or the other spouse needs to qualify separately. Spousal support and child support may be need to be adjusted accordingly in order to qualify. The spouse whose moving out may not be able to qualify for another loan if their name is still on the existing loan. There can be severe credit consequences for both spouses should mortgage payments be late or missed altogether.
Whether one or both spouses plan to move out of the primary residence, I caution my clients to resist purchasing any additional property until the divorce decree is completed and signed. Negotiating up front how necessary repairs will be paid for as well as clear directions and timeframes for reimbursement is prudent as well.
Once again, should you or one of your clients find themselves facing divorce please don’t hesitate to contact me either through Facebook or by phone @ 281.798.4599.
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