For couples going through a separation or divorce, the marital residence and what happens to it can have big financial and emotional aspects to it. Historically, there were three choices for a marital residence: (1) the Wife retains it and pays Husband for a share of the equity; (2) the Husband retains it and pays Wife for a share of the equity; or (3) it is sold.
Under options (1) or (2), it was customary for the retaining spouse to either to refinance the mortgage(s) or have a deed of assumption whereby the retaining spouse assumed the mortgage(s). However, with the ever-changing requirements of the mortgage industry, more and more spouses are unable to meet the criteria in order to refinance or assume the mortgage. They do not have sufficient liquid funds to pay an additional down payment where the house may be underwater; they do not have the requisite income; they have too much other debt, etc.
The previous option for spouses who were unable to refinance or assume the mortgages was to place the house on the market for sale and then divide the net proceeds. Today, unfortunately, houses may have no equity, and/or the parties do not want to sell.
For settlement purposes, spouses can discuss allowing one party to stay in the house and can make an agreement on how mortgages are paid and can make an agreement on how the other spouse gets paid for his/her share of equity. If this is a course you are considering, it is important to consult with a family law attorney and a real estate attorney to make sure that the agreement is drafted in a manner to try to protect co-debtors of a note, to try to protect in the event of death, to try to protect against further judgments being secured by the house because once a divorce is entered, your rights in real estate can change.
There are many different opinions about if and when the real estate market will turn around and housing prices will increase. Making sure that you have set out a plan that takes into account a long term view is important and understanding the intentional and unintentional consequences of your actions are essential.
