A Detailed Guide on How to Divide the Shared Home in Divorce Mediation
The shared home is often the most significant asset owned jointly by a couple undergoing divorce mediation. It serves as a residence, an economic investment, and a place filled with shared memories. Therefore, dividing the shared home is a complex and challenging issue that requires careful consideration.
Options for Dividing the Shared Home in Divorce
- Sale to a Third Party: In this case, the couple sells the home to a third party and divides the proceeds based on their share of the joint property.
- Transfer of Rights to One Party: One partner receives full ownership of the home in exchange for financial compensation to the other party. Compensation may be in cash, offsetting social benefits (present value), or another asset like another apartment or a car. It’s important to clarify whether the transfer of rights is done through a divorce transfer, which means no immediate tax event (not a cancellation but a deferral), or a regular transfer, which involves paying any applicable taxes, such as capital gains tax, and considering it as part of the joint liabilities.
- One Party Remains in the Home: One partner stays in the shared home for an agreed-upon period, while the other moves out. The parties may agree that the staying partner will not pay the other for residing in the home or that the staying partner will pay usage fees to the moving partner, based on their share of the joint property. Usage fees are generally calculated (unless otherwise agreed) based on the amount the couple would receive in rent, minus the monthly mortgage payment (if applicable). Mediation can also explore other payment arrangements, such as deferring payments or alternate cash distributions.
- Renting to a Third Party: The couple rents the home to a third party and splits the rental income based on their share of the property.
- Sale in the Future: The couple agrees not to sell the shared home immediately but to wait a few years until the children are older. Afterward, they will sell the home and save on brokerage fees.
Considerations When Dividing the Shared Home
When choosing the appropriate method for dividing the home, consider the following factors:
- Personal Preferences: Do the partners want to stay in the home or sell it and move to a new place?
- Economic Interests: What is the value of the shared home? What is each partner’s share in the joint property?
- Children’s Needs: If there are children, consider their needs. For example, if the children are young, it might be better to keep them in the home with one parent.
- Economic Capabilities: In times of financial instability, it may be wise to set agreed mechanisms for the future sale of the home. Such mechanisms can ensure flexibility and adaptation to changing circumstances.
Consulting a Real Estate Lawyer
Consult a real estate lawyer if there are multiple properties or questions about future tax liabilities. Ensure the lawyer specializes solely in real estate.
Selling the Shared Home to a Third Party
Selling to a third party is a common option. The couple sells the home and divides the proceeds based on their share of the property.
Advantages:
- Relatively simple to execute.
- Provides financial compensation for the home.
- Allows the couple to move on to new lives.
Challenges:
- Requires cooperation between the parties.
- If not coordinated, the price might be lowered below market value by others.
Determining the Home’s Value in Divorce
There are three main ways to determine the value of the shared home:
- Appraiser: A certified appraiser determines the market value of the home. Note that a bank’s appraiser often values the home lower to secure mortgage approval. If there’s a dispute over the appraiser, you can request the appraisal board or court to appoint an appraiser.
- Real Estate Agents: Some use agents to estimate the home’s value. However, agents might suggest higher prices to sellers and lower prices to buyers to secure exclusivity.
- Agreed Price: If both parties agree on a fair price, they can forgo professional valuation services.
Advantages of Selling the Home in the Future
Selling in the future is another option. The couple agrees to wait a few years before selling the home.
Advantages:
- Allows the couple to keep the home if desired.
- Provides time for potential market improvements.
- Delays the solution until circumstances are more stable.
Challenges:
- Limits financial flexibility for purchasing an alternative property.
- Requires cooperation and trust.
- Requires predicting numerous potential issues that may cause disputes.
In any case, ensure that your divorce agreement thoroughly addresses the home issue. Don’t leave anything to chance. The agreement should be detailed and consider all possible future scenarios.