Couples approaching divorce focus on separation: living separately, having separate bank accounts and separate investment holding, paying taxes separately and so goes the list.
With the exception perhaps of parenting decisions, in which cooperation is a key factor, divorce is all about separation; indeed, in Massachussetts a divorce agreement is labeled a Separation Agreement.
Yet are there exceptions to the separation strategy? Are there circumstances or reasons why retaining joint ownership of an asset or assets can have financial or even personal advantages?
The short answer is yes. The long answer is more complicated. Joint ownership after divorce requires couples to consider carefully the advantages and disadvantages of continued ownership and, if they decide to move ahead with co-ownership, to map out, in writing, and in their divorce agreement, the terms they will abide by.
The most common example of joint ownership is the marital home. Not infrequently couples agree that one party should continue to reside in the home with the children or, for other reasons, one spouse should retain the home. However, given the current financial market and the escalation of mortgage interest rates, since 2022, low mortgage interest rates are hard to relinquish. More frequently than not, the person who wishes to stay in the house, often with both parties agreeing, is not the sole person on the mortgage. Either the mortgage is in the name of both parties or in the name of the person who will not be living in the house. If the mortgage cannot be assumed by the occupant spouse after divorce either because the mortgage Note does not provide for loan assumption on divorce or the individual does not qualify to assume the Note, does joint ownership provide a financially attractive alternative? The answer is yes, but yes with cava:
The parties need to reach agreement on many key factors, including:
• The first decision, and the one that impacts on all other decisions, is who is the “true” owner of the house. If the non-occupant spouse does not have an ownership interest in the future value of the house, he or she has less responsibility for financing the home. Still, the agreement should protect him or her financially.
• Who pays the mortgage and, if the party who pay is not the only borrower on the Note, how to ensure that payments are made in full and when due?
• Who pays all other house -related expenses such as home insurance and taxes if not part of the mortgage payment, as well as utilities, maintenance (e.g., lawn), repairs and so on?
• Who pays for capital repairs? This question depends on how the ownership of the house is viewed by the parties. If the parties consider it a “true” joint asset, which will be sold and the proceeds divided, then both parties have responsibility to maintain the value of the home. Alternatively, if the house is viewed as belonging to the occupant, with the joint ownership undertaken to retain the low mortgage rate, then the occupant would be responsible for the capital repairs.
• What is the time frame for joint ownership? Is the house retained jointly until the youngest child graduates from high school or college? Or is it until the occupant can refinance the house in his or her name? Or is there a set date, unrelated to an event, when the occupant buys out the non-occupant’s interest or sells the property?
Clearly there are many questions to be answered and a framework structured in order to protect both spouses from future uncertainty and conflict with respect to co-ownership.
Vacation homes (and time-shares) provide another example of real estate that spouses consider for shared ownership. Here some of the details to be delineated are the same, including payment of house-related bills. However, vacation homes may be retained jointly because the parties wish to share usage in the future. Agreements to be considered include:
• How and when to allocate usage (e.g., each has one summer month)
• Housekeeping before and after visits
• Responsibility for maintenance of the property or oversight of people hired to maintain the property
• Usage by others, including but not limited to friends, relatives, significant others
It is helpful for couples to think about the possible pitfalls and concerns of joint ownership, including what happens if one party wants to sell his/her interest or remarries or dies. Thinking ahead does not cause problems; it provides a path forward for dealing in the present and also in the future with possible conflicts.
Although we have concentrated on shared real estate. Divorcing couples may also elect to have a joint bank account or investment holding for funding child-related purchases or shared real estate.
Indeed, post-divorce joint ownership comes in many different forms. The key takeaway from this article is the need for planning. Agreements to co-own and/or co-share an asset require careful and thoughtful planning. Mediation provides the vehicle for such brainstorming and shaping of written agreements for moving forward. An experienced and knowledgeable mediator can help parties to generate questions and reach agreements. Planning before divorce avoids conflicts after divorce.
