Divorce is a complicated process with emotional and practical challenges. When a spouse moves out of the marital home, they’ll need a new place to live. Many people opt for a temporary rental, but in some cases, it might make sense to find a more permanent solution. Is buying a house during the divorce process a good idea? Here’s what you need to know and how it works.
First off, should you buy a house during a divorce?
You might be motivated to buy a house during a divorce after quickly selling the marital home and needing a place to stay. You might be concerned about providing stability for children in a turbulent time. These are legitimate reasons to buy a house during a divorce. But it’s important to understand the risks of buying a house during a divorce, particularly in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin).
Why it could be risky
Purchasing a house before your divorce is settled might be convenient, even necessary, but it can further complicate an already messy process.
- You cannot afford your house: Purchasing before a divorce settlement does not take into account any spousal maintenance or child support you may not have budgeted for.
- The house becomes marital property: This occurs if you use any common funds for the purchase.
- Your spouse claims ownership: This can happen in community property states.
- The house purchase makes things complicated: A house is a large asset that can complicate the division of property acquired during the marriage.
Purchasing a home during a divorce can put your share of community property in jeopardy. This can be especially risky if you are the custodial parent of children, so it’s wise to carefully weigh the benefits of homeownership with the risks of entering into it before your divorce is final.
If you have opted into community property laws in Alaska, Florida, Kentucky, Tennessee, and South Dakota, you may also be kicking a hornet’s nest when it comes to dividing assets.
What happens to community property during a divorce?
The marital home is often the largest asset the divorcing couple shares. There are several options when it comes to how the house is handled during a divorce.
It is important to note that each of these options carries with it potential tax implications. It would be highly upsetting to settle into a home after a divorce, then be hit with an unexpected tax bill.
File a quitclaim
In some cases, one spouse will file a quitclaim deed, handing over all claims to the home. This includes releasing all responsibility for paying the mortgage and is usually a good option when a spouse is on the title but not the mortgage.
Refinancing to remove a spouse from the mortgage is another option. This requires that one spouse is able to secure financing based on their single income.
One spouse “buys out” another
If one spouse is able, they pay the other their share of the equity in the home. This only works if there is equity in the house and the spouse paying out the other qualifies for a refinanced mortgage on the home.
Selling the home
When all other agreements fail, the house can be sold and the profits divided. This can be tricky in a down market.
How to buy a house during a divorce
It’s critical to keep the new home purchase as an asset separate from marital property in the process of being divided. This is a tricky balance, but it’s possible. To buy a house during a divorce and protect it from becoming marital property:
- Make a note of your official separation date.
- Use funds that are defined as separate property from the marriage.
- Check your credit report to determine what financing is possible.
- Calculate a budget based on post-divorce income.
- Get the purchase approved by the court.
A real estate attorney can help you better understand the implications of buying a house during a divorce and prepare you for the expenses that lay ahead. Ultimately, the decision to buy a house during divorce proceedings is personal and a divorce attorney can provide the best advice.