Heading for a divorce, what to do about the house?

[smisk]

Unfortunately my wife and I appear to be heading towards getting divorced, after a relatively short time together, and I'm looking for some advice on what to do about our house, from a financial perspective.

Some things to note:
-It was purchased in August 2020 with a 20 year mortgage and a 2.75 rate.
-We've lived together the entire time, but weren't married at the time of purchase, and I put the whole 20% down and am the only one on the deed, since then we've split the monthly payments.
-Also her parents generously paid for some fairly costly renovations before we moved in, something like $15k-20k.
-Bought at 355k, zestimate is 428k, and there is 254k left on the mortgage.

Since I purchased the house myself, I think I have a pretty strong case to keep it and buy out her share, but she's also said she'd be open to buying me out and transferring the mortgage to her. We want to have an uncontested divorce, so I expect us to hash this all out outside of a courtroom.

Right now I'm leaning towards staying in the house, partly for emotional reasons as I am attached to it, but I'm wondering if the finances make sense. The monthly payment is just under 2k, plus a $100 HOA fee and utilities, so my expenses would go up significantly in the short term living alone. But I can afford it, would just be saving less, and I could always get a roommate at some point. The house is a 3 bedroom, so it's certainly more space than I need, but 1 bedrooms in my area are around $1700, if I wanted to split with someone I could find a place to live closer to $1k. If I did keep the house and bought out her share, I think it's come to around $25k.

Another option is to have my wife buy out my portion. This would give me a nice chunk of change, somewhere around $100k, but I'd have to find a new place to live, and I really don't like the idea of doing all the work of moving in the near term.

Alternately could sell it, and we'd both get a portion of the profit, though I'm kind of averse to this idea in a high(er) interest rate environment. If both of us want the house badly enough and we can't come to an agreement without someone getting hurt, this might be the best option.

I'm not at all sure if I want to stay in this house longer term. We're in the suburbs of DC, and I've often felt like I'd like to live closer to the city, though housing does get very expensive. If I do keep the house though, I figure I could always sell or rent it out at a later date, though since I have a 20 year mortgage, renting it out would just barely cover all the expenses, not make me any money.

Would love any perspective, please let me know if there are any other questions or clarifications about the situation.

[oldladystache]

You could have the one who values it most buy it from the other. The one who is willing to pay more for their half.

[lhamo]

Sorry you are having to deal with this stressful situation.

Since the location of the house is not what you prefer, I would lean toward letting your SO buy you out -- yes, moving is a pain, but this is a good opportunity for you to try out living somewhere more central. Good opportunity for a reset. And 100k would cover rent for several years.

[Cassie]

Because you are the only one on the deed she is going to have to get a new mortgage at a much higher interest rate. Most loans can’t be assumed. Even if she could the mortgage company will not take your name off the deed even with a quit claim deed because the more people on the hook for the mortgage the better. It negatively impacts your ability to buy in the future since it shows up as a debt for you.  How do I know all this? I have been divorced 3 times.

[smisk]

Because you are the only one on the deed she is going to have to get a new mortgage at a much higher interest rate. Most loans can’t be assumed. Even if she could the mortgage company will not take your name off the deed even with a quit claim deed because the more people on the hook for the mortgage the better. It negatively impacts your ability to buy in the future since it shows up as a debt for you.  How do I know all this? I have been divorced 3 times.

This is good info, I briefly looked into it and saw one site that said the deed can usually be assumed by the other party in the event of a divorce, but sounds like it's not so simple.

[Cassie]

Most loans however aren’t assumable. If she has to take out a loan at a higher interest rate she may not qualify or even want to do it. Since you don’t want to live there long term I would probably sell the house and start fresh.

[secondcor521]

Because you are the only one on the deed she is going to have to get a new mortgage at a much higher interest rate. Most loans can’t be assumed. Even if she could the mortgage company will not take your name off the deed even with a quit claim deed because the more people on the hook for the mortgage the better. It negatively impacts your ability to buy in the future since it shows up as a debt for you.  How do I know all this? I have been divorced 3 times.

This is good info, I briefly looked into it and saw one site that said the deed can usually be assumed by the other party in the event of a divorce, but sounds like it's not so simple.

You can deed ownership of the house to her.  What you can't do (in all likelihood) is transfer the mortgage to her.  And in all typical scenarios, owing a mortgage on a house owned by your soon-to-be-ex is utterly irrational.

Were I in your shoes, I would not buy her out.  I would put it on the market and sell it; if that happens to be to her because she has the best offer, then OK.  If you want to cut her somewhat of a deal because of who she is, then that is your prerogative.  Just don't think that cutting her a deal will get her back, heal your marriage, or result in her reciprocating in some other way - if you're truly headed for divorce, it's now a business deal.

As an aside, you probably want to read up on what the state laws are regarding division of marital property and what constitutes separate property not subject to division.  In my state, gifts and inheritances which are kept separate and not commingled are separate property; everything else is divided 50/50.  So in my state, the house equity would be divided 50/50 regardless of the down payment, improvements by her parents, and who paid the monthly payments, because all three of those complications were commingled in the house itself and are no longer separate property as a result.

Some divorce decrees give the person who owns the house a period of time to refinance.  I think that is a messy way to do things and I wouldn't do it, but it seems somewhat common.

We sold our marital home while separated and divided the net proceeds 50/50, which we then used to buy our individual homes.

[Catbert]

Because you are the only one on the deed she is going to have to get a new mortgage at a much higher interest rate. Most loans can’t be assumed. Even if she could the mortgage company will not take your name off the deed even with a quit claim deed because the more people on the hook for the mortgage the better. It negatively impacts your ability to buy in the future since it shows up as a debt for you.  How do I know all this? I have been divorced 3 times.

This is good info, I briefly looked into it and saw one site that said the deed can usually be assumed by the other party in the event of a divorce, but sounds like it's not so simple.

Adding someone to the deed is an entirely different thing than them assuming your loan.  I can always add someone to my deed, but my lender won't let someone be added or assume the loan.  Whatever you do don't stay on the loan and let her have the house.  Even if your divorce settlement says the loan is her responsibility, that doesn't mean the mortgage company will release you or transfer the loan to her.

[LifeHappens]

Whatever you do don't stay on the loan and let her have the house.  Even if your divorce settlement says the loan is her responsibility, that doesn't mean the mortgage company will release you or transfer the loan to her.

100% this.

OP, if I were in your situation of divorcing with no children, I would sell the house and include the proceeds in the division of assets. That bypasses SO MANY potential problems with property valuation, equitable distribution, refinancing and just general hard feelings.

Plus, and this is just my personal feeling, it would be much easier for me to move on emotionally in a different residence.

[smisk]

Were I in your shoes, I would not buy her out.  I would put it on the market and sell it; if that happens to be to her because she has the best offer, then OK.  If you want to cut her somewhat of a deal because of who she is, then that is your prerogative.  Just don't think that cutting her a deal will get her back, heal your marriage, or result in her reciprocating in some other way - if you're truly headed for divorce, it's now a business deal.

As an aside, you probably want to read up on what the state laws are regarding division of marital property and what constitutes separate property not subject to division.  In my state, gifts and inheritances which are kept separate and not commingled are separate property; everything else is divided 50/50.  So in my state, the house equity would be divided 50/50 regardless of the down payment, improvements by her parents, and who paid the monthly payments, because all three of those complications were commingled in the house itself and are no longer separate property as a result.

Yikes, didn't realize it could be 50/50 in some places. I read up a little, apparently VA uses a couple different formulas to determine what portion of an asset is marital property vs separate property and my impression was that it would take things like down payments into account, but I should look into it more closely.

I feel like we got a good deal on this house since prices and interest rates have gone up so much since, but you may be right that selling is the easiest option.

[Omy]

First, consult with a good divorce attorney.

Usually the simplest thing to do is sell the house and divide the proceeds. Is she even willing to take less than half the proceeds of the house?

You put down $70k and her parents paid $20k. There's approx $144k in equity after selling expenses. I see a fair split of you getting $97k ($70k dp + half remaining equity) and ex getting $47k ($20k renovations + half remaining equity) if you sell and aren't forced to split 50/50.

How did you come up with $100k to you and only $25k to her?

Be prepared that her calculations (like mine) will likely look very different from yours. And she may have contributed in other ways that you are forgetting or discounting.

It's sometimes better to be a little generous if you're trying to avoid giving all of your proceeds to attorneys - especially since the  spouse with the smaller income is often favored in the court system.

[smisk]

First, consult with a good divorce attorney.

Usually the simplest thing to do is sell the house and divide the proceeds. Is she even willing to take less than half the proceeds of the house?

You put down $70k and her parents paid $20k. There's approx $144k in equity after selling expenses. I see a fair split of you getting $97k ($70k dp + half remaining equity) and ex getting $47k ($20k renovations + half remaining equity) if you sell and aren't forced to split 50/50.

How did you come up with $100k to you and only $25k to her?

Be prepared that her calculations (like mine) will likely look very different from yours. And she may have contributed in other ways that you are forgetting or discounting.

It's sometimes better to be a little generous if you're trying to avoid giving all of your proceeds to attorneys - especially since the  spouse with the smaller income is often favored in the court system.

Thanks, the $25k number was basically just half of what we've paid down on the mortgage, plus some amount for the appreciation of the house. But I agree it's better to be generous, she has put a lot of work into the house.