“Who will get the house?”
This is often one of the first questions we get from clients. It encapsulates a cluster of common concerns among individuals going through a divorce: How will my living situation change? What happens to the family home? How will my finances be affected?
When everything in your life is already changing, it can be daunting to think about potentially having to leave your home and navigate all the questions that arise as a result—especially the more technical questions about real estate and asset division.
But while difficult, these questions also present an opportunity to set the goals that will help you move toward the future you want.
Who does the house belong to? It depends on if it’s marital or separate property.
For homeowners, your house is often one of the most valuable assets you possess. But who does it “belong” to when couples divorce?
When it comes to assets and divorce, it’s necessary to understand the difference between marital property and separate property. (And note that when we talk about the property here, we’re talking about any asset a couple owns, not just real property.)
Unless otherwise specified in a prenuptial or postnuptial agreement, the breakdown is usually this:
- Marital property is any property or assets acquired during the marriage.
- Separate property is property or assets acquired prior to the marriage (and not mixed with or converted into joint assets during the marriage) or obtained by gift or inheritance during the marriage.
At face value, it would seem that determining which assets are marital and which are separate is a simple process. But as with most things in divorce, the reality is more nuanced than it appears.
For example, if you and your future ex bought a house or car together, it’s typically considered marital property. This holds true even if only one spouse is named on the deed, obtained the loan, or makes mortgage payments.
However, if the marital home (or other real estate assets, such as commercial or rental property) was purchased before your marriage, some or all of the value can be considered separate property.
But what if your ex regularly contributed to mortgage payments on the house you purchased prior to your marriage? What if they funded a renovation or improved the property with regular care and maintenance? What if they helped run and maintain an AirBnB property? What if the house went from being valued at $500,000 to $5 million while you were living there together?
Unless you have a prenuptial agreement that specifically states otherwise, your house or a portion of its value could be considered marital property in those scenarios.
If, on the other hand, you inherited the home you and your ex lived in, your property will more likely maintain its designation as separate property, but certain scenarios could leave you with a claim to some reimbursements or a portion of the value.
As you can see, determining which assets are marital assets and which are separate is not a cut-and-dried formula. Working with a family law attorney with extensive experience negotiating divorce settlements is the best way to navigate the process.
Equitable distribution rules apply to real estate
If your home is considered marital property, how do you divide it? In New Jersey, marital property—including real estate—is subject to equitable distribution.
The principle of equitable distribution ensures a fair, but not necessarily equal, division of property. New Jersey courts consider a number of factors when dividing assets in a divorce, including:
- Each party’s financial situation and capacity to earn
- Individual assets, such as retirement plans and separately-owned businesses
- What each party contributed in terms of marital assets and non-monetary assets (e.g., childcare)
- Duration of the marriage
- Marital agreements, including prenuptial agreements
- Each person’s expected future needs and responsibilities
- The parties’ health and ages
Remember, divorce is a negotiation. Working closely with your attorney can help you better understand the full range of your options so you can come up with a personalized strategy.
For example, if you feel strongly about staying in your marital home to provide your children with consistency, but you know that your soon-to-be-ex spouse is more concerned about their retirement accounts, the two of you may be able to find grounds to compromise on in your negotiations.
You need to consider mortgage obligations
Your divorce affects you and your soon-to-be ex, but that doesn’t mean creditors are on the same page.
When one spouse keeps the house in a divorce, they also take on the mortgage payments. But even if the judge assigns responsibility for the mortgage to one spouse, if both names are on the loan, the lender still holds both parties liable. If one party falls behind on payments, it can harm the credit scores of both individuals.
This is why, if one party is keeping the residence, it’s generally necessary to refinance the property or (in limited cases) transfer the mortgage and terms to another individual through a mortgage assumption.
You have a few options for “what to do about the house”
If a divorcing couple owns a home, that property is often the most valuable marital asset they possess. There are three options for equitable distribution:
- Sell the house and split the proceeds (but keep in mind the way you split the proceeds might factor into other issues in your divorce)
- One spouse buys the other out and keeps the house
- Continue with joint ownership (which can be tricky and requires really specific language in your divorce agreement or judgment)
Each of these routes has advantages and disadvantages. To ensure your rights are protected and your settlement is fair, make sure to have an experienced divorce lawyer by your side.
Can you sell your house before your divorce is finalized?
It depends on the circumstances. If you’re looking at foreclosure or can’t meet mortgage obligations, you may be able to reach an agreement regarding the sale of the home, or the court could order it to be sold.
It’s also possible to agree upon a sale if the circumstances are right. However, there may be a need to hold the sale proceeds in escrow if there are still open financial questions in the divorce, and distribution of the sale proceeds factor into that. A lawyer can help ensure you’re evaluating the right choices for your circumstances.
What about getting a divorce while renting?
Generally speaking, if you rent your home, the same rules apply.
If you signed the lease and moved in after your marriage, that lease is considered a marital liability that must be distributed equitably. You can terminate the lease, remain there together until it expires, or, if the lease allows it or the landlord approves, allow one party to take over all payments and responsibilities until they decide to move.
If you choose to stay and your ex moves out, though, it’s important to request a new lease from the landlord identifying you as the sole occupant of the property.
But here’s a note for the spouse moving out: leaving and having the lease changed might remove your responsibility to pay rent directly to the landlord, but it also means you likely lose the right to enter the property without your ex’s permission. (There’s also the question of whether a rental payment constitutes a form of spousal support—consult your attorney!)
Real estate during divorce is nuanced. We’re here to help.
Each divorce is different, and that includes negotiations surrounding the marital home and other property.
If you’re pursuing a divorce in New Jersey and trying to untangle real estate questions, the team at Jacobs Berger is here to help. Put our extensive experience in managing equitable distributions, home buyouts, and more to work for you. Contact our team to coordinate your strategic planning session.