Getting A Divorce And Mortgage Rates Are Too High For Buyout

Has the increase in home values and mortgage rates made it very difficult to buyout your spouse and keep the house? Yes!!

Thirty years ago when I became a divorce attorney it was fairly common to trade equity in the house against the marital portion of the spouse's pension (if they had one and back then many people did). Pension values were lower than they are today because people earned less money and therefore the equity in the house could be offset by waiving the marital portion of the pension.

Over the last 30 years pensions became fewer as corporations shifted to 401k Plans. However salaries went up significantly and therefore pensions became more valuable eventually reaching the point that most people did not have enough equity in their home to trade against the marital equity of the pension.

Finally, when house prices rose then the trade of one asset for the other could be discussed, but still pensions outweighed most people's real estate values. So the answer was to take less of the pension but still keep the house. However, with that decision most divorcing couples had to refinance the mortgage so that it would only be in the name of the person keeping the house. This was important for several reasons which included the non-residential spouse was no longer liable for missed or late mortgage payments and their credit was not tied up with an existing mortgage. Being on the hook for two mortgages could prevent a person from buying their replacement home even if the divorce agreement stated that the other spouse was responsible for the earlier mortgage.

Now divorcing couples are facing multiple issues. House prices are high so buying a replacement house is not an easy alternative. Mortgage rates are high so even if you wanted to downsize you might still pay as much or more due to the higher interest rates even on a smaller mortgage. If you can't afford the new mortgage rates which are over 6% compared to a possible existing 3.5% mortgage what can you do?

If you are the residential custodial parent you might be able to stay in the house without an immediate buyout if your oldest child is at least 11-12 years old and the disruption of moving would be detrimental to the child's educational and social development. This method is common when the parent staying in the house can afford the house but can't afford to buyout and refinance. This method may last for many years because the court will often allow a parent to stay if there is an older child as well as a younger child. When the older child is 18 the youngest child might then be 14 and also needs to stay in the community. So a a family with a 14, 12 and 10 year old could possibly stay for approximately 8 years until the youngest child is 18 or graduates from high school.

Staying in the house defers the buyout and the non-custodial parent often has to share in the cost of structural maintenance but does hopefully receive more money when the property is sold if it was maintained and the values have increased.

If there are no children of an age where the court will allow continued exclusive use and occupancy or if the mortgage is not affordable if refinanced, then the parties are often left to attempt to fashion their own arrangement. Some families may agree to a shorter extension of time so that the buyout and refinancing has to take place within two years. This gives the parties a chance to see if rates or home prices are reduced. Some parents might agree to waive sharing repair costs if they can stay longer in the house. Some parents might agree to a larger share of a different asset in consideration of getting more time in the house. Some families might agree to change residential custody to the parent with the greater income if the children get to stay in the house (although this doesn't happen too often).

When the numbers don't line up or the time period is too great, the parents need to be more creative to find a solution that can work for both sides. Alternatively, the house may have to be sold and both parties will still be facing rising home values, high mortgage rates and high rental expenses.

Due to these complexities it is highly recommended to have an experienced matrimonial attorney to guide and protect you through the various possible solutions.