When can we legally sell or refinance the house in a divorce?
The Answer Depends on Your Goals (and Your Relationship with your Spouse).
Whether or not you sell or refinance your house will depend on several considerations: Does one of you want to keep living in the house? Can that person afford the house on his or her own? How good is your credit? Can you temporarily afford two homes? What if you temporarily have no home? Do you need cash now from the equity of your home or are you prepared to wait for your payout?
A home that you and your spouse own (or that one of you owns individually) is considered marital property and will be subject to division in a divorce. If you and your spouse cannot agree on the disposition of your home, the court will decide for you. The court can award the house to one party or the other or can order that it be sold. The house is generally one of the most valuable assets—and most expensive debts—in a divorce. You and your spouse will maximize your options and the likely benefits to each of you if you can agree on how to divide the home.
Should we sell the house before or after divorce?
Whether you sell the house before or after your divorce (if you sell it at all) will be a function of your financial circumstances and your ultimate goals for your post-divorce living arrangements.
If you and your spouse agree to sell the house before you file for divorce or while the divorce is pending, the divorce court can still account for the sale proceeds as part of the divorce to make sure that the money was fairly allocated between you, taking into consideration the totality of your financial circumstances and all other property to be divided.
Any agreement between you and your spouse as to how to distribute or use the proceeds from the sale of your home can still be subject to review and modification by the court. An attorney can help you formalize any agreements you may have in an effort to ensure the court will honor those agreements and not change them unexpectedly.
If you and your spouse agree to sell the house after the divorce is final, you will include your agreements about how to sell the house and how to share the proceeds in your Marital Settlement Agreement. You will have to discuss and consider such issues as what items to include or exclude from the sale, whether to use a realtor or to try a “For Sale by Owner” first, how/when to make price adjustments and what to do if one of you wants to accept an offer but the other does not. Usually, the divorce court will maintain jurisdiction of these issues to monitor and help resolve any problems that may arise along the way.
If you cannot agree to sell your house, it is possible the court will order it to be sold. Depending on your circumstances, the court can order the house to be sold while the divorce is pending or after the divorce is final. The court may choose to order the house sold before the divorce is over if selling the house will help resolve other issues that will make the divorce process easier (such as where children will live and attend school) or if the home is causing significant financial stress on the marital estate and a sale is necessary to prevent hardship or to preserve other resources.
Do I have to sell my house in a divorce?
You do not have to sell your house just because you are getting divorced. Often the court will make reasonable efforts to accommodate a party who wants to try to keep the house by allowing that party ample time to refinance it or extra time to pay a financial settlement to the other party. The court does not want to leave parties (or their children) homeless, and it does not want to cause parties to unnecessarily lose money or incur additional expenses just for the sake of selling a house. The court will try to find a solution that is to both parties’ mutual benefit.
Selling the House During a Divorce
Selling a house during a divorce is just like selling it at any other time. You and your spouse will list the house for sale—typically through a real estate agent. You will then receive and negotiate offers until you find one that is mutually acceptable. You will accept the offer and will then cooperate with the sale—by participating in or facilitating appraisals and inspections or by removing fixtures not included in the sale.
At the time of closing, the sale proceeds will be paid to the owner of record—likely you and your spouse jointly as “husband and wife.” If only one of you owns the house, the proceeds will be paid to the owner. If your home is not in both parties’ names, the non-owning spouse should consult with an attorney prior to closing to ensure that his or her share of the proceeds are received and that he or she is effectively relieved of any mortgage, property taxes, or other liability on the home—because these things may not happen automatically!
And if a divorce is pending, the court will be able to intervene in any sale and to make any appropriate orders about the price, the terms of sale, or the disposition of proceeds upon request of you or your spouse. It is possible that if the house is sold during a divorce and you and your spouse cannot agree on how to distribute the sale proceeds that the court will order them to be held in trust by one of your attorneys or with the Clerk of Courts until the divorce is final.
While a divorce is pending, there are automatic restraining orders in place that prevent you and your spouse from selling, transferring, or encumbering any individual or marital asset without the other party’s consent. The good news is—this means your spouse cannot sell the house without your cooperation, nor can he or she sell the house out from under you if your name is not on it. Such actions would be violations of the statutes and your attorney would likely apply to the court for Contempt Sanctions which could include monetary fines or even jail time.
Selling the House Before a Divorce
You can only sell your house before a divorce by mutual agreement—because there is no court involved yet that can make orders regarding the sale. However, if you choose to sell your property before you file for divorce, the court can reach back to a year prior to the divorce filing and ask the parties to account for any sale that took place during that time. Any sale proceeds received in the year prior to the filing of the divorce may still be subject to property division in the divorce. Talk to a lawyer to find out how to protect your home sale proceeds if you and your spouse sold a house shortly before filing your divorce.
Selling the House After a Divorce Agreement
If you and your spouse agree to sell the house after your divorce is final, you and your attorneys will negotiate provisions for how to accomplish the sale. The court will continue to oversee this issue in the event any problems arise.
If you and your spouse did not agree on the disposition of the house and the court has ordered that it be sold after the divorce, the court will also include provisions directing you and your spouse about how to accomplish the sale. Again, the court will maintain jurisdiction to monitor any issues.
Can I refinance the house before the divorce is final?
Typically, you cannot refinance a house before a divorce is final because:
- Refinancing into one party’s sole name will require that party to know what his or her post-divorce income, assets, and debts will be in order to secure the mortgage. This is almost impossible to know until the divorce is final. Therefore, lenders are not keen to loan money based on unknown or hypothetical circumstances.
- You are married until you are divorced. Any attempt to refinance the mortgage into one party’s sole name will not eliminate the other party’s homestead rights or possible liability for the mortgage due to ongoing marital property interests that will exist until the divorce is final.
- However, it is smart to begin researching whether you might be able to qualify for a re-fi and, if so, what needs to be done so that you can begin gathering the necessary documentation ahead of time. That way, when the divorce is final, you will be able to complete the process quickly.
Do I have to refinance my house in a divorce?
You will have to refinance your home as a result of a divorce in the following situations:
- 1. The existing mortgage is in the name of you AND your spouse and refinancing is necessary to put the mortgage into only one person’s name and relieve the other person of all liability. This generally happens when one party is going to keep the home and buy the other party’s interest.
- 2. You need to take home equity out of your home to pay a cash settlement to your spouse. In this instance, you will likely refinance your home or take out a home equity line of credit in your own name to buy-out your spouse’s interest in the home.
When you must refinance your home to pay your spouse a settlement or remove them from liability, the court will generally give you anywhere from 60 to 180 days to finalize the process.
Other Selling & Refinancing FAQs
What if my partner refuses to sell the house?
It is typical in divorce judgments that one party will be awarded the house and will be given a specific amount of time in which to refinance to remove the other party from liability or pay them a settlement. If that does not happen, there is usually a clause that triggers a sale. If the party is not able to refinance the house within the time specified, they must list the house for sale—usually on broad terms prescribed in the judgment (e.g. at a reasonable price; listed with a reputable realtor; etc.). The judgment will detail what is to happen with the sale proceeds and will maintain jurisdiction to make or modify orders in the event of a dispute.
What happens if I can’t refinance after a divorce?
If you have been ordered to refinance and are unable to do so, it is likely you will have to put the house up for sale. You may be able to work out alternative arrangements with your spouse that will release them from the mortgage liability (which is the main goal of refinancing). For example, you may be able to pay-off the mortgage with loans from family or friends. You can also seek relief from the divorce court by requesting an extension of the time in which to refinance or asking for additional time to pay the court-ordered settlement or to pay it from other sources.