What Happens to the Family Home During a Divorce?

Woman using key to open door

Divorce sucks, I get it! It doesn’t matter the reason, the instigator, or any of the behind the scenes details you’re rehashing with your counselor, it just sucks.

There are so many questions during the process that need to be answered: visitation, separating the bank account and retirement funds, and support payments. The list goes on!

“Divorce is the one human tragedy that reduces everything to cash,” acknowledged Rita Mae Brown,  an American feminist writer, best known for her coming-of-age autobiographical novel, Rubyfruit Jungle.

What Happens to the Family Home During Divorce

Often, the most challenging asset conversation revolves around the family home. There are conversations both about who, if anyone, will stay in the property as well as about value and proceeds distribution. As a realtor, I’m called in to not only discuss what a potential appraisal or sale price point may be but also to give insight into how the next steps will look to the people involved.

The Money Side of Divorce

Most people are versed in the coming together of a home purchase, and even the sale of one. Few think of the points to consider, community property, a CMA, refinance, and services that are part of a division.

• Community Property. Any income and any real or personal property acquired by either spouse during a marriage are considered community property and thus belong to both partners of the marriage. In Texas, under community property, spouses own (and owe) everything equally, regardless of who earns or spends the income. This is an important one to understand because if the current marital property is refinanced before the divorce is final OR if either party buys another property before the completion of the court process, the title company will require all person’s signatures and the house(s) belong to both regardless of who is named on the loan documents.
• Competitive Market Analysis. This evaluation estimates a home’s potential value based on recently sold, similar properties in the immediate area. the analysis considers the location, age, size, construction, style, condition, and other factors for the property and comparables. Real estate agents and brokers create reports to help sellers set listing prices for their homes and help buyers make competitive offers. In a divorce, it’s not uncommon for agents to be asked to complete a review prior to an appraisal in order to get a baseline.
• Refinance. A refinance is a process that involves obtaining a new loan to pay off a current one. Usually, with a refinance loan, the goal is to have a better interest rate and better terms than the current loan. In a divorce, a refinance is often done to remove one party from financial obligation (and title) to the property regardless of current interest rates. The remaining party will need to meet lender criteria for their own assets, income, and credit.
• Services. Utilities are an additional service that is required so that the property can be fully functional. These are paid on a monthly basis and include such as electricity, natural gas, and water and are often tied to the credit of the person who set up the accounts. In order to potentially avoid additional costs, if the property is to be retained by one party, making arrangements early to cancel service in the non-remaining person’s name and setting up in the other’s may eliminate connection fees. This would also be true of cable, internet, and phone providers.
• Exemptions. A tax exemption is an allowance that reduces or eliminates the taxes owed by an individual or organization. Exemptions can apply to many different types of taxes, including income tax, property tax, and sales tax. It is not uncommon for municipalities to “drop” old exemptions when a house is retained by one party as if the home has a new owner. Be sure to follow up and have exemptions you qualify for reinstated or you’ll be spending more per month than you need to.

These five points address the “money side” of a divorce proceeding. However, one final item also should be discussed: security. Whether a peaceful dissolution, and absolutely if in a volatile one, the soon-to-be exes or their attorneys should document the return of keys, exchange any needed account info to update systems such as Nest or Google cameras, and provide any monitoring service with new passwords.