"You can have the house!"
"No, you can have the house!"
Yes, we sometimes hear an exchange like that in divorce cases. In the game of musical chairs, one person ends up standing while the others safely sit. When two people are left, that means there will be one winner. When a person gets stuck with a negative asset (such as an "underwater" house) after a divorce, they can often feel like the last person standing in a game of musical chairs.
When this happens, there are a variety of issues to sort through that require the help of a divorce attorney with experience settling or going to trial. People who find themselves in these complex situations need an attorney who understands how to minimize the impact of any negative assets when approaching settlement negotiations or going to trial.
Who gets the marital home?
In a best-case scenario, you and your spouse will mutually agree who gets the home during the process of a settlement. Remember, courts will often look at the children's best interests, so if you can't agree who gets the home then the children will be a major factor in influencing the way a judge decides. Without children as a factor, the settlement or court decision about the home becomes purely a business negotiation if you and your spouse can't agree who gets it.
Who pays for the marital home? And how much equity or debt does each spouse take on related to the home?
Remember, a home will involve a lot of money in the future including mortgage payments, property taxes, bills, and repairs. Who pays that? If a spouse stays in a house saddled with a lot of debt, how much will the other spouse pay or help out with that debt? The combination of debt, equity, and future payments on the home will definitely affect the way your divorce attorney approaches a settlement or trial in order to make the final decision as fair as possible to you.
What happens with an "underwater" home?
Getting stuck with a negative asset especially rears its head when the house is "underwater." That means your loan amount is more than the free market value of your home. For example, you may have taken out a mortgage loan for $200,000 but your home is now only worth $150,000. To make sure you aren't stuck with a home where you're also responsible for the "deficiency" (in this example, the $50,000 loss), your attorney needs to get creative and negotiate hard on your behalf. They may perhaps get your ex-spouse to help pay for part of the loss or do a short sale to liquidate and fairly split up the asset.
What if repairs that are needed to help sell or refinance the home will eat up the home's equity?
Despite having home equity that looks good on paper, you may find yourself in a situation where so many repairs are needed that you have to spend the equity repairing the house to help sell or refinance it. If your attorney knows this is the case, they can help you anticipate how much money you need for your repairs and introduce this information as part of your negotiations during settlement talks or the court case.
Are there non-financial reasons you want to stay in a house that's a negative asset?
Despite a house being "underwater," needing major repairs, or saddling you with a lot of debt, reasons may exist to stay in the house rather than sell it, refinance it, or abandon it to your spouse. For example, your children may go to school in the area and need to stay there for stability and emotional purposes. If you need to remain in the house for a period of time because it isn't feasible or desirable to sell right away, an attorney will help you think out how to approach repairs, mortgage and tax payments, and both you and your spouse's interest in future equity. Your attorney can both clearly show the need for staying in the house and also help negotiate with your spouse's attorney or the courts to ease the financial burdens of any debts or payments you are taking on.
Call us if you have had experiences in any of the scenarios above, it's important that an attorney helps you navigate through any issues that might arise regarding property left in joint title or jointly financed after the divorce for a period of time. The bottom line: Make sure you don't end up stuck with a negative asset after a divorce that only causes you unnecessary financial burden while getting your new life on track.