A house is so much more than just the walls and the floors. A home holds our marriages, it can represent our dreams about family and security and identity. We have so much invested in our homes, emotionally and financially. Real estate is typically the largest asset a family has, and in divorce, someone, or both people, must let it go.
The decision about what to do with the family residence can mirror the relationship itself, and its breakdown. Murky emotions combined with the very real financial significance of a house can complicate decision-making, says Mona Elhalwagy, a mortgage broker and non-practicing attorney with Forbix Capital, a boutique residential and commercial broker in Sherman Oaks. In her role as a loan officer, Elhalwagy has seen a variety of issues arise when a couple has to decide what to do with the family home during a divorce. For insight, we reached out to her.
Splitopia: In divorce, is it generally better to keep the house or sell it?
Mona Elhalwagy: Speaking from a strictly financial perspective, I think it is always best for one person to keep the home. If the house is sold, you might have to pay capital gains. In addition, if you have been in the home for a long time, your property taxes are lower than if you bought that same house today.
If one person is going to continue living in the family home, you generally have to refinance the house in order to remove the ex-spouse from the title and loan. You can’t go back to the lender and just take their name off the loan. A mortgage is essentially a contract. If you want to remove somebody, the lender wants to make sure that the person who is keeping it makes enough on their own to make the mortgage payment.
If you own the house outright and don’t have a mortgage, then it’s a lot easier. In that case, the couple just has to file the appropriate paperwork for the spouse to be removed from title.
If it’s not feasible to keep up with the mortgage payments, then selling the house might be the only option. It’s also true that cutting ties with the house can be a major step to moving on after the relationship has ended. Another option is for one spouse to keep the family house but rent it out as investment property.
Splitopia: How hard is it to get a loan to refinance a house in divorce?
ME: Overall, lenders are loosening their guidelines, and it’s getting easier for people to get loans. I attribute part of this to an increase in property values. For example, I have seen lower credit score and documentation requirements. In addition, some lenders do not have a maximum on how much cash you can take from your home.
People typically come to me if they need a new mortgage in order to buy out a spouse. As a broker, I have numerous loan programs with competitive rates. The clients I have helped with the buy-out of a family home are very appreciative, especially if they have previously been turned down for a loan by a bank or another broker.
Also, we work with commercial and hard money loans in addition to residential loans. This means that if a client wanted to also refinance a commercial building during the divorce, we could help them with that.
Splitopia: What is the biggest challenge you’ve seen, in terms of one person wanting the keep the house during a divorce?
ME: The biggest challenge is when a spouse remains in the house, receives alimony or child support, but is not gainfully employed. In those situations, even if the alimony payments will be enough to qualify them for a new loan in their own name, the issue always arises as to what they will do when the support will eventually stop. This causes many clients to do some serious soul-searching about how they will generate an income.
Splitopia: We’ve seen two couples recently in LA have to sell the house because they were living beyond their means in the marriage, and this really came to light in the divorce. Do you see that a lot?
ME: Los Angeles is rather expensive, and that can make it hard to refinance if you do not have a lot of equity. Say, for example, you have a house that’s worth $1.5 million, and you owe $1.2 million, it’s going to be hard to get a lender to loan you enough to buy the other person out because you’re already tapped out on the equity of the house.
Splitopia: How often do you see ongoing fighting about keeping or selling the house, or deciding who gets to stay?
ME: By the time a client comes to me, these issues are already resolved. However, I have seen it where one spouse will not comply with what is needed because of the emotional issues and resentment they are harboring. I’ve come to realize that if you need a spouse to sign a document, and they are dragging their feet, it’s usually because they are still bitter about the divorce. Dragging their feet is their way of still getting back at the other spouse.
Splitopia: What can a person do, or how can a mortgage broker or lawyer help if your spouse is refusing to meet or make or sign an agreement?
ME: People can go back and forth over the silliest things, but I feel confident that eventually they come around. Family law is rather emotional. For example, the spouse being removed from title has to sign an “interspousal transfer deed.” They might resist it, but the reality is that there is no other way for a spouse to come off title to the property. I find that reasoning with a spouse and explaining why a document is necessary is important.
Splitopia: Is there some table or calculator a divorcing couple can use to figure out if they should sell the house or have one person keep it?
ME: There is no calculator where you can put in a number and say voila! There are a lot of factors, primarily the emotional value of the house and the financial ability of the spouse who wants the house to keep it.
Splitopia: Thank you for clarifying all this!
For a first-hand account of moving out to move on, read The Pros of Living Solo.
Read here for 5 ways to love your home again.
Click here for 4 ways to begin feeling at home in your space.
Mariella Rudi is a multimedia journalist in her hometown of Los Angeles. Serving as editorial assistant at Splitopia.com, Mariella also manages Splitopia's social media and branding strategies. She has a nose for community news and the entertainment industry. Previously, she was editor at WestsideToday.com, Brentwood News, and Century City News. She graduated from Pepperdine University with a degree in journalism in 2015 and, like so many of her millennial peers, is skilled in the art of the side-hustle. Much of her work can be found at mariellarudi.contently.com.