Divorce – Real Estate
Below is a list of common questions in a divorce regarding real estate:
Q: Can I use my support (spousal maintenance and/or child support) to qualify for a mortgage?
A: Yes. But, to use your support to qualify for a mortgage, the payments must continue for 3 years after the closing on the mortgage. We can easily predict when child support ends. It ends upon the “emancipation” of a child, which is age 18 or high school graduation up to age 20, whichever is later. In rare cases, it can extend beyond age 20 if a child is unable to provide for their own support. Spousal maintenance is the thornier issue, and the duration is typically negotiated. In a long-term marriage (i.e.: 20+ years), the duration of maintenance is usually considered to be “permanent.” This doesn’t mean forever, but until the reasonable retirement age of the spouse paying, typically somewhere in the range of age 66-68. In a medium-term marriage, around 10 – 15 years, these are usually considered “rehabilitative spousal maintenance” cases. How long your support will last depends on a number of factors, including your ability to provide for your own self support, the marital standard of living, and the ability of the other spouse to pay — to name a few. Many people negotiate the end date of spousal maintenance and subject the award to a waiver. The means that no matter what, maintenance will be paid in a set amount for a set period of time. Not all cases are right for a waiver of maintenance. Whether a waiver is appropriate depends on the certain facts and circumstances of each case.
Q: Is it a good idea for me, or my soon-to-be ex-spouse, to buy a separate residence before the divorce starts?
A: It depends. If your soon to be ex-spouse is going to buy a residence to allow for physical separation, that is usually ideal because that separation will need to happen at some point. The newly purchased property will be considered as an asset in the divorce and divided as part of the marital estate. However, it is not recommended to have both spouses’ names on the mortgage note for the new property. Divorce decrees do not bind third party creditors. If your spouse is awarded that property in the divorce, and then fails to pay the joint mortgage, you can be sued by the mortgage company for the delinquent amount. Then, your option is to sue your ex-spouse in the divorce file for repayment. This can be a costly and cumbersome process. In sum, it is usually fine as long as the spouse who will live in the property can qualify for a mortgage on their own. It is quite simple to remove names from titles after the divorce is complete.
Q: If I keep the house, will I need to refinance?
A: Usually, yes. Most divorces in MN are settled by way of mediation or another settlement program. When a case is settled privately, we almost always agree to a timeframe for refinance if a spouse will remain living in the marital home. The time frame is negotiable and can sometimes coincide with a life event, like the graduation of the youngest child from high school. However, if the time frame is longer (ie: 1 year +), then the other spouse will usually ask for “sunset” language in the final divorce decree. This is language that, until the refinance happens, if the spouse living in the house defaults on the mortgage (usually by 60 days) while the mortgage note remains in joint names, then the house will be promptly listed for sale and sold. Sometimes a spouse will also ask for permission to direct their support payments to the mortgage if it isn’t being paid – this must be agreed upon because support can only be paid via direct payment of the amount due if there is no agreement otherwise. If a case is resolved by way of a trial – which is uncommon in Minnesota – then the court will usually not require a refinance. Rather, the court will award the house to a party at its fair market value subject to the current mortgage. And, if there is a disagreement as to which party will keep the house – then the court will order the house be sold. Courts will not have a quasi-custody fight over who gets to keep real estate.
Q: If I keep the house and must refinance the loan, who pays for the refinance costs?
A. Usually the spouse keeping the house will pay for the refinance. However, sometimes this cost is shared by way of negotiation.
Q: My spouse and I agreed to sell the house as part of the divorce but the house needs repairs, how can we pay for that?
A. We typically add language to a divorce decree that the agreed upon Realtor will do a walk through of the property and create a “punch list” of necessary repairs and improvements to achieve a prompt sale. The cost of those repairs are then shared equally. But, if one party advances the fees to pay for the repairs, then that party will be reimbursed for the advance at closing before proceeds are divided in the agreed upon way. These are usually minor fixes like paint, replacing or cleaning carpet, new appliances, etc.
Q: If my spouse and I agree to sell our home, can we complete the sale before the divorce is final?
A. Yes. This is very common. If there is an agreement on how the proceeds will be divided, then the attorneys can send a “letter of instruction” to the closer with directions on how to distribute the sale proceeds. How the sale proceeds are divided depends on the facts of each case. If there is no agreement on how the proceeds will be divided, then usually the sale proceeds are placed into the trust account of either attorney pending final resolution of the case. It is very important to discuss the division of the proceeds early in the sale process. And, knowing that sale proceeds are forthcoming is a great motivator to get your divorce resolved – at least the property related issues. Most people would rather have the cash in hand than sitting in a trust account.