Covid-19 affected many aspects of our lives—our economy, our educational systems, our social lives, and our health care systems. Divorcing couples were by no means immune from the virus’ assault. Support orders and parenting plans were routinely upended. Some couples were able to adjust to the changes. They worked together to provide supervision for children stuck at home with remote schooling; they capitalized on savings from cancelled extracurricular activities, allocating funds to supplement support orders negatively impacted by reductions in income from work furlough, cuts in pay, and employment layoffs.
As the economy now struggles to open, the housing market presents a new and baffling challenge. Divorcing couples, who had agreed to retain joint ownership of the marital home until their children’s emancipation, are now questioning their decision. The housing market is hotter than hot. Houses are selling at a previously unimaginable rates with bidding wars jacking up asking prices. Is this a short -term result of low inventory and expanded population mobility attributed to increased opportunities to work remotely? Or, has the housing marketed been affected by increased costs for building materials and shortage of construction workers? The questions abound, but the answers are in short supply. Some economists warn that the housing bubble will burst. Others see the pricing spiral climbing upward.
Returning to our central dilemma, we pose the question of whether or not divorcing couples should capitalize on the “hot” housing market by selling now, taking the net proceeds, perhaps renting for a year or so, and then re-entering the housing market. Alternatively there is always the question of relocating to a less expensive area. Naturally, for divorcing couples with school-age children, the quandary is that both parents need to relocate to maintain any semblance of a co-parenting plan.
Economic forecasts aside, nobody can really predict the future fate of the housing market in Massachusetts or perhaps anywhere. Still the question presented to divorcing couples is really key to the family’s living arrangements as well as to the division of marital assets. In this two-part article series, let us first consider different options in which the marital home is not sold.
Scenario One: Retain Joint Ownership of the Marital Home
The couple decides to retain joint ownership of the marital home in order to provide their children with stability and continuity of home, community, and schools. Here the focus is on the welfare of the children, even college-age children. The parents believe that the family home represents for their children a sense of security and an anchor to the community. For some couples, the parent who will remain as occupant of the house, also feels the need to stay in the home. He/she may not be sure where he/she wants to live or needs to secure employment before relocating, or is going to be the primary caretaker of the children.
Key Questions Surface:
Who pays the mortgage, real estate taxes, homeowner’s insurance, utilities, and routine upkeep and maintenance?
Who pays for repair costs and, if both parties are liable, how is the joint approval process defined?
Is there a time limit on joint ownership and/or is there any event or events that would trigger the end of joint ownership?
Is there a buyout provision for one spouse or for both spouses?
How is the sale process structured?
Are the proceeds divided equally?
Does one spouse receive credit for any payments made by him/her?
The important point here is that couples entering into a joint ownership agreement of their home, or for that matter any asset, need to think through the terms and contingencies of their arrangement.They should not enter into a vague agreement without defining the details of their arrangement. The future may well bring unpredictable occurrences, but having the central terms specified will at the least constitute a foundation for dealing with the unknown.
Scenario Two: One Spouse Retains the Marital House
Typically the easiest way to structure a division of assets in which one spouse keeps the house occurs in families where there are sufficient holdings to structure an equitable division of assets without either owing the other money. The questions that now arise center on valuation of assets, including the house, and assessing the future financial impact of the resulting division of holdings. For example, will the party who retains the house have sufficient liquid assets or ability to generate sufficient income to afford household expenses? Will the relinquishment of assets, such as retirement funds, leave the party who keeps the house with no way to retire without selling the real estate and, if so, is that an acceptable, even preferable, outcome?
And what about the spouse who “sells” his/her share of the house? Will this spouse be able to find a reasonable place to live? Will the children be comfortable in both parents’ homes? Will the assets retained by the spouse grow similarly to that retained by the other spouse?
However, not all families have sufficient assets to divvy up the estate. In many instances, if one party wishes to retain the house, a buyout agreement needs to be put in place. And, not surprisingly, many more questions arise:
How much is owed?
How are payments made and over what kind of time period?
Are payments with or without interest?
Can there be a partial buyout? Say, for example, can the resident spouse own 75% of the house and the other spouse retain 25% ownership?
Are expenses now shared proportionately?
Is there an end date to this arrangement?
What happens if the resident spouse remarries?
We, at the Centre for Mediation and Dispute Resolution, suggest that it is critical for couples to think through the terms and contingencies of their decision-making. The rush to reach an agreement should not impede your ability to approach settlement terms with thoughtfulness and careful analysis of present and future consequences. Families always benefit from having worked together to create a rationale and workable agreement. Mediation provides the forum for facilitating an analytical approach undertaken with guidance and care in a safe and confidential environment.