Should I Keep the House?


In just about every divorce I have handled there has been a house to address, in lawyer-language, “disposition of the marital residence."

The traditional scenario has the house owned by both parties with the mortgage in joint names. For any number of reasons one or both parties will want to keep the house. Some think having the house will give them an advantage in the associated child custody case. Some think the house is a good investment. Some have an emotional attachment to the house.

Whatever the client’s reason for keeping the house, in the mind of any lawyer or divorce factfinder, keeping the house boils down to cold-hearted numbers. Can the party who wants to keep the house afford it? As a longtime homeowner myself, I can tell you that there are a lot of hidden costs associated with homeownership. Not only is there the hassle and expense of refinancing the existing mortgage after divorce, but also making the monthly mortgage payment, paying the real estate taxes, the homeowners insurance, utilities, yard care, snow removal, maintenance, cleaning, the costs go on and on. On top of that, none of us are getting any younger. Cutting the grass might not seem like a big deal now, but what about ten years from now?

While I always listen to what clients want to do with the house and, ultimately, am bound by their wishes, I am generally opposed to my client keeping the house. If the house is sold as part of the divorce, both parties share the costs of sale. These costs include not only the obvious ones like the real estate commission and transfer tax, but the painting-cleaning-fixing costs recommended by the realtor, as well as the soft costs of cleaning out and disposing of everything in the basement, attic and closets.

If a party keeps the house after divorce for the remaining two years while the youngest child is in high school, he or she is then saddled with all those costs while the former spouse took his or her share of the appraisal-based house equity and walked away.

It seems to me that a big factor in wanting to keep the house in a divorce is sentimentality and totally illogical. While I understand this, the number-crunching lawyer part of me tries to steer my client away from such a decision. I ask them why they want a monument to the (maybe) good times of ten years ago and then I go through the economic issues I list above. Some people (eventually) agree with me, some do not. My job is to make suggestions based on my experience. Sometimes people take my suggestions, sometimes they do not.

A second scenario for houses in a divorce is where one party owned the house before marriage and the parties lived in the house during the marriage.

While the house-owning party has every right to keep the house, in Pennsylvania, the increase in value of the house during the marriage is a marital asset subject to equitable distribution. That means the homeowning spouse would owe the other spouse money to “buy-back” all of his or her interest in the house. Depending on how long the parties were married, the increase in value could become significant. Further complicating this situation is where the non-homeowning spouse invests his or her money into improvements for the house like a new kitchen or deck. How do you avoid a situation like this? The best way is through a prenuptial or a post-nuptial agreement signed during happier times of the marriage.

A third homeownership situation is where one spouse owns the house before marriage and at some point during the marriage, the deed is transferred from one spouse’s name to joint names. In this scenario, the homeowning spouse has gifted maybe hundreds of thousands of dollars in home equity to the marriage, and all of those dollars become subject to equitable distribution. This could create a windfall for the spouse who received the interest in the house.

How would a court deal with this potentially unfair situation?

An idea that has its roots in Montgomery County, Pennsylvania, but which has been adopted in one form or another in many other counties is what is called the “twenty-year vanishing credit." Under that theory, the equity that was gifted to the marriage is spread out over a fictional 20 years, increasing the gift 5% every year. So, if the parties stay together for ten years after the house was put into joint names, only 50% of the gifted equity is a marital asset subject to equitable distribution. The gifting spouse keeps the other 50%. For both spouses this is a fairer solution than an all or nothing solution where the house equity is either included or totally not included in the marital estate subject to equitable distribution.

In closing, in my mind, keeping the house or not keeping the house comes down to an economic decision. What does it cost to keep the house, both in the short term and over the long haul? In the divorce world, sometimes emotion overwhelms logic and common sense. Any lawyer’s responsibility is to try to see beyond the emotion and focus the client on his or her best interest, long term. That being said, the client is the one ultimately making the decision. 

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