Dividing marital property? Know Your Options:
When getting divorced, determining what to do with the marital property can be difficult. As you figure out the most favorable way to divide assets, be sure to look at your primaryhome and other marital property within the big picture – as part of the whole – and try to detach your emotions from the decision-making process.
When handling your divorce and marital property division, it may be in your best interest to split the equity in the home. If so, it is important to understand the pros and cons of the various approaches to splitting equity when getting divorced.
Before fighting to keep the family home, make sure you have taken all the costs to keep and maintain the home into account. Remember, you will need to be able to pay these costs both during the marital property division process and after getting divorced.
If you decide to sell the marital property and split the net proceeds, you will benefit from dividing the assets right away and by getting the greatest capital gains exclusions. On the other hand, in a down economy, the home may be upside down with negative equity, which means you may have to take a loss or even bring money to the closing table.
Another option is to refinance and pay your spouse with proceeds from cashing out some of the equity in the marital property . If you choose to do this, you can benefit from dividing the funds right now and can take advantage of low interest rates. Unfortunately, it may be difficult to qualify for refinancing with only one income, while using both incomes further complicate matters.
You might also choose to use other assets, such as cash, investments, or retirement funds to “buy them out.” This could be a viable option if you really want to stay in the home, but cannot qualify for refinancing. But remember that the assets you cash in may actually hold more value than the marital property and you may not be able to liquidate the assets again if you need them.
A final option, if you cannot qualify to refinance and one spouse wants to stay in the marital property , is a promissory note, which allows time to pay. There are some problems that come along with agreeing to a promissory note, however. For example, if the owing spouse files for bankruptcy, the other may not collect what is owed. Also, if there is a lien on the home of the owing spouse and they lose it in foreclosure, this marital property would no longer act as collateral for the balance owed on the note. And finally, this option keeps one spouse acting as a debtor over the other – not usually a good situation after getting divorced.
To help you make an informed decision for your particular case, consult someone with experience in financial matters and divorce, such as a Certified Divorce Financial Analyst (CDFA). It is important to get the best support available so you can negotiate a favorable outcome for your divorce.
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