As a Mediator and Collaborative Divorce Attorney, I know that the house is often one of the most significant shared family assets for many divorcing couples. Determining how to address that asset in a divorce sometimes involves difficult conversations. Clients should work with their Mediator or collaborative divorce team to identify the most appropriate way to address the house during the divorce and negotiations.
There are often two ways to deal with the house. First, the clients can agree to sell the house. After paying off the mortgage, the clients can then determine how to best distribute the equities between them. The second option is that one client may buy the other client out of the house. In this scenario, usually one of the clients agrees to a loan to pay off the mortgage and provide the other spouse with their share of the equity, or one of the clients takes cash out of the equity through a Home Equity Line of Credit to pay the spouse for their share of the house.
Unfortunately, both traditional ways of dealing with the house have been complicated by recent changes to the housing market. With the rising interest rates, the housing market has cooled significantly, making this a buyer’s market. Selling the house may be more complicated than even six months ago. The asset is not worth as much. It may seem that the second option might be more attractive as the clients can agree to a value amongst themselves rather than relying on a buyer. However, the rise in interest rates may complicate attempts to refinance. Interest rates were relatively low for a long time, and many clients have refinanced to a lower rate or obtained a low-rate loan in the first place. The refinancing will be more expensive because of the higher interest. Also, the lower-earning spouse who may want to stay in the house may not be able to without spousal support for up to 48 months.
Unfortunately, a process known as “assuming the loan” does not appear to be a good option for many clients. This is because the loan companies do not offer that option.
To work through this challenging conundrum, use your resources. Your Mediator or Collaborative Team likely has connections to residential loan officers and realtors who can give you a realistic overview of your options. Many loan officers carry the Certified Divorce Lending Specialist certification, and several Realtors specialize in working with divorcing clients. These professionals will have the expertise to support you during this challenging time.
While neither the Mediator nor the Collaborative Team can change the loan options for you or the house’s value, you can still utilize those resources to navigate the opportunities. And, there may be additional opportunities depending on how flexible and curious the clients are with options. The goal is to obtain the most appropriate and equitable result for the family.