What You Need to Know
If you are going through a divorce, one of the things that you will need to decide is what will happen with your shared home. The family home is often one of the most substantial assets that a couple owns. It may also hold sentimental value to both sides. The division of assets in a sale, or the question of who gets to keep the home itself, can get complicated in a divorce.
Arizona is a community property state. This means that if there is no prenup (discussed more in detail under heading 4. below), the spouses generally share ownership of anything purchased, acquired, or paid for during the marriage, regardless of who paid for the property, or whose name is on the title of the property.
In this guide, we will discuss various aspects that go into selling or not selling a house during a divorce. In many cases, when a couple decides to get a divorce, it makes the most sense to sell the family home.
For additional questions (whether they relate to the sales process, title, mortgage, or general divorce questions), please feel free to reach out to our highly specialized Divorce Team – we are always happy to help.
1. Who Gets the House in a Divorce?
In most cases, the family home will be treated in one of three ways in a divorce:
- One of the spouses buys out the other spouse’s interest in the property and takes on the mortgage related to the property,
- One spouse remains in the home for an agreed period of time (many times until the children turn 18), after which the home is sold and the proceeds are divided between the spouses,
- The house is sold right away and the equity is divided between the spouses.
Who gets the house in a divorce is not a simple question. When negotiating the fate of the family home, be sure to know your legal rights and consult a divorce attorney before agreeing to how the property will be treated in the divorce, and how the equity will be divided.
2. Dividing Large Assets
In some cases, if the spouses own several large assets (such as, for example, a primary home and investment properties), it may make sense to divide the assets, with each spouse taking ownership of assets worth approximately the same amount. Dividing large assets can be a faster way than a sale to handle real estate in a divorce. However, special attention should be paid to how these assets are valued, so that the division ends up being equal and fair. An assessment of fair market value by an appraiser can be a good starting point, but it should be borne in mind that the opinion of a single appraiser on property value may not fully align with its actual market value (i.e. what the property can be sold for). Another risk that comes with the division of assets without a sale is that one or more major assets may end up taking a plunge in value, while others may appreciate or maintain their value, thereby leading to an unequal end result between the spouses.
3. Title Considerations
Most title companies have certain requirements that must be met before the title to a property can be sold or transferred between divorced spouses. What this means is that the title company will review the final divorce decree to ensure that it contains all the necessary language that the title company needs to move forward with the transaction. Specifically, the company will look for a final, non-appealable order admitting the decree to the divorce suit. If the decree is incomplete, a warranty deed may be required, which can delay the closing/title transfer process. For a divorce decree to officially transfer title between spouses, it must include language that specifically grants the property to one spouse and divests the other spouse of all interest in the property. In most cases the title company will ask that a warranty deed is signed and recorded at the time of closing rather than record the divorce decree as public record. If the property is being refinanced or sold, the title insurance company will be able to prepare this document for signing and recording at closing.
Another requirement that the title company will look for is that the decree should contain the actual legal description of the property, not just the physical address. A decree lacking the legal description recorded with the county is not deemed sufficient to give notice of the title transfer from the perspective of the title company.
The title company will typically also review the divorce decree between property owners for lien language. What if the decree imposes a lien against the property in favor of one ex-spouse? In this case, the lien must be satisfied before the home is sold or refinanced, or the ex-spouse must sign a Release of Lien once the debt is satisfied. If the title company is to pay the lien through the closing, the ex-spouse will be required to sign a Release of Lien before funds can be released to him or her.
4. What is a “Prenup?”
A prenuptial agreement, commonly referred to as a “prenup,” is a contract entered into by the spouses prior to getting married, in which they have typically agreed upon certain legal rights that they acquired through the marriage. A prenup also typically addresses what will happen when the marriage eventually ends (by death or divorce). The purpose of a prenup is often to supersede default marital laws that would otherwise apply in the event of a divorce, including division of property and rights to alimony.
5. What is a “Buyout?”
If one of the spouses wants to keep the family home, while the other one wants to sell, one option is for one spouse to buy out the other spouse. Things that may be considered when determining the money to be paid by one spouse to the other for their share in the home may include each party’s income and financial contributions to the property (i.e. the buyout does not necessarily need to equal half of market value). Something to consider in a buyout is that the purchasing party should have access to enough cash to buy out the other spouse, in addition to which he or she should be able to afford the mortgage on a single income. In some cases, the purchasing spouse may be able to roll a buyout into a refinancing.
6. Co-owning the Family Home
Sometimes a couple will agree to continue to co-own the family home after the divorce. In this scenario, the parties should agree on how the mortgage payments will be made and divided between the parties, and how the proceeds will be split if the home is sold down the line. Co-owning a home typically comes into play when there are children involved, and both parties want them to be able to stay in the family home. Obviously, co-ownership of a home requires that the spouses are on good terms and are able to agree to the terms of co-ownership amicably. Of course, one of the down-sides to co-ownership is that both spouses remain financially responsible for the home. Even if you are divorced, if the other spouse fails to make the agreed payments on time, late payments will affect both spouses’ credit scores. Another thing to consider is that upon a sale of the home, the spouse who has not been living in the home as a primary residence for at least two of the previous five years cannot claim the Home Sale Tax Exclusion. This means that they would be subject to capital gains taxes on any appreciation in the sale. One way around this is to agree on a sale timetable that gets both owners the tax exclusion.
7. Why Selling Your House May Be Necessary
There are a number of reasons why selling your home during a divorce may be the best option for you.
7.1 Financial Reasons
When you purchased the house, you may have been relying on two incomes to cover the expenses arising from the ownership. If neither spouse can afford the mortgage and all the related expenses that come with owning the home (insurance, property taxes, maintenance, etc.) on their own, selling may be the only viable option. Another reason to sell might be to cash out on the equity that is built into the property. If you purchased the property a few years ago, chances are that its value has increased substantially. Also, the Home Sale Tax Exclusion provides for a tax break of up to $500,000 in profit to married couples (the exclusion drops to $250,000 if you are single). In order to be eligible for the exclusion, you must have lived in the home as your primary residence for two of the last five years. The tax break provides a major financial incentive to sell the home prior to the divorce being finalized.
7. 2 Avoiding a Legal Battle
If the parties cannot agree on what to do with the family home, the courts will decide for you. However, court battles can be draining, both financially as well as emotionally. Most people will want to avoid a legal battle, so agreeing on the sale of a home and how to split the proceeds is often more amicable and simple than the alternative solutions.
Once the family home has been sold and the value of the home is no longer subject to speculation, it typically becomes easier to divide the assets.
7.3 Liability Reasons
If one spouse insists on keeping the house, there are liability aspects that should be considered. While one spouse may have enough income to take over the mortgage and all the expenses related to the home, it is important to ensure that the other spouse is removed from liability going forward.
7.4 Personal Reasons
The marital home is often the emotional heart of a couple, a place where they created memories as a family, with or without children. Letting it go is naturally difficult. But it can also be a positive emotional step forward to break free from the past and an important step in the healing process.
Something that many people don’t realize is the possible negatives that may go with keeping the family home from the children’s perspective. While staying in the family home may provide the comfort of familiarity, continuing living in the home that the children associate with the family unit (and now missing parent) might not always be the best way forward. Sometimes starting fresh in a new environment may actually be more comforting for the children and help them through the transition. Down the line, the parents may also introduce new “significant others” into the picture, and the children may resent the new person moving into the family home because they may feel like the person is trying to take the place of the former spouse in the setting that they strongly still associate with him or her.
8. How to Sell Your Home During a Divorce
8.1 Working with Divorce Experts
Selling your home during a divorce does not need to be more complicated than selling it at any other time. One thing that you need to make sure you address prior to the sale is who gets what once the sale has been completed. Working with the right real estate professionals will ensure that even if you are under some pressure of time constraints to complete the sale, you will still be able to get top dollar for your home. If you are interested in finding out what the fair market value of your home is, you can get started with a free estimate from the Premier Agent Team (Realty One Group).
8.2 Preparing to Sell
Before putting the house on the market, discuss preparing your property (to get the most money for it) with your real estate agent. Make sure you are working with an agent who has experience in divorce sales. Discuss maintenance that may be beneficial to complete prior to listing the home, market conditions, as well as staging touches that can add value to the sales process. If you want to sell the home quickly, it may be beneficial to do a home inspection and address any major issues that could cause problems in the sales process. If you decide to invest in some repairs or upgrades prior to listing the home for sale, it’s important to agree on how those expenses are covered and if/how they will impact the split of the proceeds. Discuss the process with your divorce attorney as well and formalize any agreements related to these types of investments before making them.
Other important things to discuss and agree on include living arrangements during the sale of the home. Will one spouse be living in the home while it is being sold, and if so, will they pay the mortgage in full during that time? Are there any payments related to the home that will be split (and how)?
Finding the right real estate agent to work with is critical when selling a home during a divorce. A real estate agent experienced with divorce sales will be able to work with both spouses towards your common goal, and act as a mediator between you and your spouse should any conflicts arise during the process. Realty One Group’s top-rated divorce team will be able to help you navigate through the sales process and make it as quick and easy for both you and your spouse as possible, never losing sight of the fact that your common goal will be to get the best price and most favorable terms for your home.
8.4 Accepting an Offer
Selling the marital home is an emotional journey, and often involves some compromise. It is important for you and your spouse to discuss and agree on a price that you are both willing to settle for in advance. Work with a real estate agent that you can both trust to get you the best possible deal.
While your list price will depend on a number of factors (comparable sales, appraisal, and selected strategy), you may end up with an offer above or below the list price. When the offers start coming in, maintain open lines of communication with all parties (you, your spouse, your real estate agent, and your attorneys) so that you can make decisions quickly and smoothly.
8.5 Dividing the Profit
Both spouses typically involve their divorce attorneys in the division of the profit after the martial home has been sold, since this is part of the bigger picture of dividing the marital assets. At closing, the proceeds will be disbursed by the title company following the Decree of Divorce and/or written instruction signed by all parties as to the division of assets. Funds will be divided as instructed and wired or a check provided to the appropriate parties.
9. Purchasing a New Home During a Divorce
Always consult a qualified lending specialist to determine what you will qualify for after the divorce is finalized. The goal for both parties is typically to retain homeownership, whether that means refinancing one spouse off the current home, or selling the departing home and purchasing a new residence. It is important to know what each party will qualify for prior to finalizing the divorce.
When you are attempting to retain your current home, it is important to confirm that you are able to qualify for that home as a single person. Once a divorce decree is finalized, all debts will be assigned to the agreed upon party. These debts will be taken into consideration by the lender when assessing a party’s overall ability to qualify.
10. Alimony, Child Support, or Separate Maintenance
If you anticipate receiving alimony, child support of separate maintenance and need it to qualify to purchase your new home, it is important that you follow Fannie Mae and Freddie Mac guidelines in order to use this as income. The guidelines (as in effect 10/5/2022) require that you must have this income documented in the form of a divorce decree or separation agreement. In order for income to be considered eligible it must show a continuance for at least 3 years past the date of the mortgage application. It is also necessary to show that the income in question has been received for at least 6 months or longer on a regular basis. These are among some important qualifying guidelines, which is why it is recommended to speak with a licensed loan specialist early in the process, to be able to determine the ability to qualify for the new home, or the refinance of the current residence.
11. Quit Claim
If one spouse wants to retain the current residence and refinances the loan on the home (thereby removing the other spouse off the current mortgage), a Quit Claim Deed will be executed at closing of the refinancing removing the other spouse off title of the home. After the execution of the Quit Claim Deed, the removed spouse will no longer have ownership in the home. The new loan would be solely in the name of the spouse retaining the home, which allows the other spouse to not have that debt attached to their credit (which is beneficial when they are trying to qualify for a loan to purchase a new home).
12. Preserving your Credit
Another important factor to consider when qualifying for your new home purchase and/or refinance during or after the divorce is knowing where your credit stands. Upon settling the divorce, each party will be responsible for different debts acquired during the marriage. Paying off debts, and taking over remaining debts can impact your credit score.
FICO, a score created by Fair Isaac and Company, is the credit score used by more than 90% of mortgage lenders. It uses a scoring model from all three credit bureaus – TransUnion, Equifax, and Experian. These scores will range from 300 as the lowest, to 850 as the highest of the scores. Mortgage credit scores focus mainly on your payment history, credit utilization, and credit mix.
When considering the purchase of a new home, It is always wise to review your FICO credit score, since this is what mortgage lenders will use to qualify you for a new loan. It is important to note that there can be a difference between your official FICO score (the one that the lender will use) and the credit scores that are available through your bank or some websites such as Credit Karma or FreeCreditReport.com.
Chris Ziebell & Alex Walters – Realtors® – Divorce Real Estate Sales Specialists – Realty One Group – Premier Agent Team
(480) 770 6685 I (623) 810 2581
firstname.lastname@example.org I email@example.com
James P. Mueller – Partner – Divorce Law Attorney – Provident Law
(480) 388 3343
Christy Infantino –Senior Loan Officer– Divorce Mortgage Specialist – CrossCountry Mortgage
(602) 793 3778
Susan Lane – Branch Manager – Divorce Escrow & Title Specialist – ROC Title (Paradise Valley)
(480) 847 2044
The information contained in this article is shared under the auspices of informational and educational purposes only and does not constitute financial, investment, legal or tax advice. You should contact your REALTOR®, attorney, CPA, or financial advisor for any professional advice concerning any particular real estate related question or decision. Chris Ziebell, Alex Walter, James Mueller, Christy Infantino, Susan Lane, Realty One Group, Provident Law, CrossCountry Mortgage, and ROC Title are not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided in this article. Access to this article and any related materials do not create any broker-client, attorney-client, or fiduciary relationship between Chris Ziebell or Alex Walters/Realty One Group and the user, or James Mueller/Provident Law and the user, or Christy Infantino/CrossCountry Mortgage and the user, or Susan Lane/ROC Title and the user. Chris Ziebell, Alex Walter, James Mueller, Christy Infantino, Susan Lane, Realty One Group, Provident Law, CrossCountry Mortgage, and ROC Title do not make, and hereby disclaim, any representations and warranties regarding the content, whether express or implied, including implied warranties of merchantability or fitness for a particular purpose. The user uses the information provided in the presentation at the user’s own risk. Chris Ziebell, Alex Walter, James Mueller, Christy Infantino, Susan Lane, Realty One Group, Provident Law, CrossCountry Mortgage, and ROC Title hereby disclaim any liability to the user for any loss, damage, or cost arising from or related to the information, including, without limitation, the accuracy, appropriateness, timeliness, quality, or completeness of the information provided in the article, regardless of the cause. Chris Ziebell, Alex Walter, James Mueller, Christy Infantino, Susan Lane, Realty One Group, Provident Law, CrossCountry Mortgage, and ROC Title are not liable or responsible to the user with respect to any lost profits, loss or damage, including, without limitation, incidental, indirect, or consequential damages caused, or alleged to have been caused, directly or indirectly, by the information.