Keeping the house

[dncr]

What is the name of your state (only U.S. law)? CA

I am posting this for my non-internet savvy friend. She has been married for 16 years. During most of that marriage, my friend and her husband have owned (well, paid the mortgage on) their home on a piece of property. My friend is the sole wage earner, while her husband does the books, built the house, did the maintenance and yard work, etc.

Sadly, they are getting divorced. I don't want to go into all the details, so hopefully I'm giving enough to get good advice. It's really important to my friend to keep the property. She runs her business on it, which is her life-long livelihood and requires a particular type of property and zoning. She doesn't have the resources to buy her husband out, and half the sale of the property would probably not be enough to buy her an equivalent replacement. I think her husband is willing to let her buy him out, but that may only be because he knows she can't. He loves the property and probably wants to keep it, but since he doesn't work, he doesn't rely on that property as much as she does.

I heard somewhere about some kind of divorce mortgage, where one spouse could get some kind of loan to buy out the ex-spouse. Can anyone tell me what this is and what it's all about? Or any other advice for my friend?

 

[ecmst12]

It's known as refinancing.

 

[nextwife]

Exactly. She goes to a bank or mortgage company (she might try the place she does her business banking), applies for a loan and gets a mortgage sufficient to pay him half the equity they have in the house plus pay off the current loan (if any) removing his name from any current mortgage.

 

[mistoffolees]

She really needs to talk with an attorney and/or financial planner.

To answer the question of whether she'll be able to keep the house, she needs to develop a financial plan:

- First, determine who will have custody of the kids, if applicable
- Then, will she be paying child support?
- She might have to pay alimony, so that should be figured in
- If there are kids, there may be additional child care costs after the divorce
- In addition, she will have additional costs for bookkeeping, maintenance, and so on once her husband is gone

Once she obtains a reasonable estimate of all those figures, she can determine if she can afford the house. If so, she should take her estimates to a bank and ask about refinancing. Alternatively, since she has been the one paying the mortgage, the bank may agree to simply take his name off the mortgage for a much lower fee than refinancing (although she wouldn't get the benefit of today's interest rates). Since they've been paying down the mortgage for years, there may be enough equity that she wouldn't need to bring any more money to the table.

The real issue is paying stbx his 1/2 of the equity. Note that she doesn't need to buy him out entirely, but needs to pay him 1/2 of the marital equity in the home. It may be possible to get some cash back at the time of refinancing. If, for example, their current equity were 50% of the home's value, she would owe him 25% of the home's value. If she refinanced 75% of the home's value, then she'd be able to pay him his share.

Alternatively, she can trade other assets against his share of the home equity. If, for example, they have retirement accounts, she could let him have a greater share of the retirement accounts in exchange for his share of the home equity. (However, consider tax consequences when exchanging pre-tax for after tax property).

Finally, you haven't addressed the value of the business. Since he helped to grow the business, he may be entitled to 1/2 of the value of the business (or, at least, the amount the business has grown during the marriage if she had it before they were married). Fortunately, many small businesses depend almost entirely on the principal, so it may not have much in the way of book value, but she shouldn't simply ignore it.

She should ask for temporary possession of the home when filing for divorce and then ask for the home during the various divorce proceedings. He can ask for the same thing, but since he doesn't have an income, he is unlikely to get it.

She should get her ducks in a row with the bank as soon as possible, but can not actually do anything until the divorce is final.

 

[nextwife]

Who has been the primary caregiver? Or have they shared caregiving?

 

[LdiJ]

Where is there any indication that there are children involved?

 

[dncr]

There are no children. Thanks, all, for the info--Neither she nor I am financially savvy. She will call a lawyer, but the decision to end it came during the holidays so she hasn't been able to do that yet. It's a very sad situation.

 

[Bali Hai]

There are no children. Thanks, all, for the info--Neither she nor I am financially savvy. She will call a lawyer, but the decision to end it came during the holidays so she hasn't been able to do that yet. It's a very sad situation.

Well worst case, the property will have to be sold for equity to be split and a long term CA marriage usually ends up with a judge ordering lifetime alimony.

Your friend may need to do a bit of downsizing.