Why Co-Owning the Marital Home After Divorce Is a Terrible Idea
Co-owning a home together after divorce will not resolve your marital problems; in fact, it could actually exacerbate them.
Divorce is a time of significant emotional upheaval. It is also a time when you face many issues about your current and future financial situation. Often, the emotional and financial aspects of your divorce have competing interests that need to be managed with sound advice, reason, and a look towards building a solid future. In many cases, the fate of the marital home is at the center of these emotional discussions and financial decisions. Over the years, I have seen many divorcing people make terrible decisions simply because they were thinking emotionally, rather than financially. As I discussed in my last article, the marital home is often a couple’s most substantial asset, but unlike other assets, the marital home usually comes with great emotional attachment. Sometimes, out of pure emotional angst and lack of funds, the divorcing couple decides to keep the marital home for the sake of the children, and they continue to co-own the property after they divorce.
Here's Why Co-Owning the Marital Home After Divorce Won't Work
1. You Have Good Reasons for Your DivorcePresumably, you are getting divorced for good reasons. Maybe you fought all the time, one of you had an affair and/or addiction problems, or, like many divorcing couples, you had significant financial issues and differences. Co-owning a home together after divorce will not solve those problems nor will it make them disappear. In fact, it could actually exacerbate them. As in many marriages, you probably disagreed on how to handle financial issues. And when you jointly own a home post-divorce, there will be nothing but more financial issues and disagreements. Maintenance and financial decisions will need to be made about the home, and you are not getting along. At some point, one or both of you are going to want to move on. Once you are divorced, you and your ex-spouse will have separate lives and your financial interests will no longer be the same as their financial interests.
2. Home Ownership Entails Ongoing Financial IssuesWhen you decide to co-own your home after your divorce, the out-spouse (the spouse no longer living in the home) might be financially strangled by the arrangement and cannot move on with his/her own life. The mortgage remains on their credit report which could prevent them from buying a new home or even renting a nice place. As I have stated before, co-owning such a large asset after divorce is bound to lead to arguments. Who is going to pay for repairs and other expenses? How long will the home be held, and when should it be put up for sale? What if the real estate market is terrible at that time, or if one party wants to sell and the other one does not? What if you can't even agree on which real estate broker to use and what price to list the home at?
3. Continuing to Co-Own the Marital Home After Divorce Will Increase Legal FeesThere are many what-if scenarios and unforeseen things that could go wrong, and there are bound to be disagreements, some of which might land you in court. This will also greatly complicate the negotiations of your Divorce Settlement Agreement. Any good divorce attorney will try to cover as many of those possibilities in your Divorce Agreement, but it is impossible to think of everything that could possibly happen. I have seen settlement agreements with over ten pages of legalese attempting to address all these possibilities. In any case, you can bet this will greatly increase your legal expenses.
4. If Your Spouse Fails to Pay the Mortgage, You Could Lose the House – and Your Credit Score Will SufferIf both of you are joint on the mortgage, you are equally responsible for the monthly payments. If a payment is late or not paid at all, both of your credit reports will get dinged, and your credit scores will decrease. Lenders and credit agencies do not care what your divorce settlement says or whose fault it was. For these and many other reasons, I do not recommend this option at all.
5. Who Will Pay How Much for Which Bills?
- Will each spouse be assigned different bills to pay for the home?
- Will the bills all be added up, with the two of you each paying a percentage of the total?
- If you still have a mortgage, how much will each of you contribute towards it? Who gets the tax deduction for the mortgage?
- If one person lives in the house and gets more benefits from it, should they pay more – or even all – of the home maintenance, utilities, mortgage, and other expenses associated with the home?
6. Even with a Clear Plan, What Happens if One Spouse Cannot Pay Their Share?
- Co-owning the marital home after divorce means that if one spouse cannot pay the bills they are legally obligated to pay, then the other spouse will still be legally responsible for those payments. The mortgage lender or power company does not care if your ex-spouse cannot pay a bill even if they are required to do so by a judge.
- If one stops paying their share of the mortgage, real estate taxes, HOA fees, etc., and the other can’t make up the difference, it could mean decreased credit scores for both parties, a foreclosure, or they may be forced to sell the home.
- Even with a written agreement, if one side is unwilling or unable to pay house-related bills, what happens? This will probably land you in court, which means more legal fees, time wasted, and needless aggravation.
- Who pays how much for what? The two of you must make joint financial decisions, which may be stressful enough, but the arrangement can take a sharp turn for the worse if one doesn’t live up to their end of the bargain.
- Should the home be repaired or upgraded? If so, how?
- What if one spouse cannot afford to pay their share of a new roof?
- If one party caused damage to the home, the fair thing would be for them to pay for repairs, but what happens if they can’t afford it? If an insurance claim is made and premiums increase, who’s paying for that?
- If one spouse puts money into the home post-divorce – how does that get recouped upon refinancing or sale?
- And what about the increase in equity caused by the appreciation of the property and the pay-down of the mortgage principal? How will that be handled upon any refinancing or sale?
7. You Can't Move OnOur hope is that you can move on with your new life after your divorce. You want to build a financial life of your own and hopefully find a new partner with whom you can build that new life. Unless there are piles of money, co-owning a home might delay your ability to move forward and will probably create more problems than they solve.
8. It Will Impact Your RelationshipsMany divorced couples, especially those with kids, maintain some level of connection after a divorce. There might be some interaction, though not nearly as much as when the two were married. If you continue to jointly own the same home, all the issues that come with owning and maintaining the property are potential disputes waiting to happen. And, if there are significant disagreements such as fighting over repairs/upgrades or unpaid bills, the rest of the relationship may crumble all while you are trying to move on and co-parent children together.
Still Thinking About Continued Co-Ownership? 3 Reasons Not to Do It
- You must think of every potential disaster and plan for it (which is pretty much impossible to do!) - some of which were mentioned above.
- Everything must be clearly spelled out in detail, agreed to, and processed as part of your Divorce Settlement Agreement (but remember, even good lawyers can’t think of everything!).
- What happens if one party changes their mind and no longer wants to share ownership? Or one party wants the house sold while the other wants the arrangement to continue, what happens then? What if the real estate market is terrible at that time – will you still be forced to sell?
Is Co-Owning the Marital Home After Divorce Worth the Grief?Co-owning a home with anyone is stressful, and as I stated earlier in this article, it, in my opinion, just isn’t worth it. After parents die, siblings may end up co-owning the family home. Business partners may co-own rental property. Family members may share ownership of vacation property. There can be differences of opinion in any of these situations, but those involved weren’t formally married, which carries far more emotional baggage. There may have been marital infidelity, lying, abuse, strong differences in child-raising, substance abuse, or mental health issues. One party may have tried to hide assets during the divorce. The couple can be dealing with anger, disappointment, and/or blame for their divorce. If one starts a new relationship, it can cause anger and jealousy in the other. If you are divorcing, you already have enough on your plate. You are starting a new life, perhaps living in a different area. For your financial, emotional, and psychological well-being, it is best to cut as many of the ties as possible that bound the two of you together, including homeownership. And, if your goal is to not uproot your children at this extremely unsettling time for them, then the best alternative may be to have one spouse keep the home, buy out the other spouse’s share of the home’s equity, and refinance the mortgage into just the name of the spouse keeping the home. You may think this is a financially impossible situation for you and maybe it is! However, if you bring in a Divorce Mortgage Expert as early as possible in the divorce process, you might be surprised to find out that you have options that you and your divorce attorney might not have thought of or didn’t even know existed. Divorce Mortgage Experts are trained and experienced in thinking outside the box and can assist you and your divorce attorney in structuring a divorce settlement that might enable you to keep your home. In addition, if doable, they will also be able to arrange the mortgage refinancing for you.
For information about my forthcoming book, Divorce House Sense: Can You Keep Your Marital Home or Will You Have To Sell?, please visit: nextactproperties.com/books