“What options do we have with our house we own together?”

Your house may be the largest asset in the divorce. It will help to seek advice not only from a lawyer, but from a financial professional. You have several choices depending on your financial situation.

Sell the house

If there is equity in the house, you could sell the house. If the house is all community property, then you would split the proceeds. The laws in the state you live in will determine what happens to the proceeds.

Short Sale

If there is little or no equity in the house, you may choose to do a “short sale” by getting approval from your lender to sell the house for less than you owe. If you do a short sale, make sure you use a real estate broker who has experience with short sales, and that you do not pay any deficiency on the sale of your home.

Foreclosure

You may need to allow the house to go into foreclosure if there is no possible way to sell it and you cannot afford to keep it. Make sure you know the foreclosure laws for the state where your property is located.

Co-Ownership

You and your spouse may choose to continue to own the house together. Make sure you have a solid agreement about your duties and obligations regarding the property. Is one of you staying in the house? Are you going to rent it out? If and when will you sell? How will you hold title to the house? Who is paying the mortgage, property tax, maintenance and repairs? If one spouse remarries, can he or she live in the house with his or her new spouse? Have an explicit agreement about all these type of questions.

Buying Out Your Spouse’s Interest

One of you may wish to stay, particularly if there are children and you want to provide a stable and familiar place for them. The house will need to be valued either by an appraisal, a broker’s opinion, or looking at comparables. Valuation can get complicated when both spouses get an appraisal and can’t agree on a value. Agree on the methodology before you start valuating. When a value is agreed upon, decide how the buyout is going to occur. Determine if it will be a cash buyout, or you are trading another asset for the house. Consider the effect of future capital gains. If a spouse is refinancing, get pre-approved, make a contingency plan if the refinancing falls through, and determine when the refinancing will occur. If your spouse is buying out your interest, but is unable to remove you from the mortgage, it is best to stay on title until you can be removed from the obligation.The house may be placed in a trust to show ownership and to protect you if you need to make payments on the house if your spouse does not pay the mortgage, because of financial difficulties, incapacity or death.

Live in the House Together

Some divorcing spouses are betting that the housing market will get better, or perhaps they cannot afford to live in two places. So they decide to co-exist until the market improves. You may still live together and divorce. However, make sure living together is not construed as reconciliation. Keep in mind that if you are paying spousal support, you cannot claim a tax deduction if you continue to live together. Be realistic about the emotional aspect of this arrangement.

These choices are best evaluated by considering the legal and financial aspects. Seek advice from professionals who can answer your legal questions and your financial concerns, not only for the present, but how your decisions now will affect your future.

Carol Severance is an Attorney at Divorce Options in San Diego, California. She helps couples in San Diego and surrounding areas avoid the risk associated with divorce court. She is an experienced divorce lawyer with a strong background helping clients resolve complicated divorces through communicating and listening to each other.