By: Diane C. Pappas, CDFA, CQS, Solutions for Divorce, LLC , [email protected], (978) 833-6144, 33 Andrews St., Gloucester, MA 01930
Rising interest rates and recent sky-high home values have created quite a conundrum for couples going through a divorce. The marital home along with a couple’s retirement accounts, are typically two of the biggest assets that make up the marital estate. In an “equitable distribution” state like Massachusetts, all assets owned individually or jointly during the marriage are divided equitably with a typical settlement ending up with a 50/50 split. Equitable does not always mean equal as there are other factors that may be considered to warrant a different division, but when it comes to the marital home, the equity in the home is typically split 50/50. In order to do this, the home is either sold and the net proceeds are split or one party may “buy out” the other party’s equity by doing a cash-out refinance for an amount equal to fifty percent of the equity in the home.
In the Boston housing market, we are still experiencing a seller’s market so one might ask, why not just sell the home now? While a lot of divorcing couples are opting to do this in order to take advantage of the crazy sale prices, others are facing obstacles when it comes to finding an affordable place to live after the sale. Historic scarcity of housing supply, higher mortgage interest rates and expensive rentals are making it difficult for a divorced individual to move on after the divorce.
However, there is another option when it comes to the marital home. Many couples who are using alternative dispute resolutions like Collaborative Law or Mediation, are agreeing to continue to co-own the home after the divorce until such time when the economy and the housing market settles down, thereby creating a better opportunity for finding affordable housing for both parties. One party will have to move out and find an affordable rental or home – if there are enough liquid assets to buy another home – but when there are children involved, it may be easier for one parent to stay in the marital home to keep the status quo.
Mortgage rates may be higher in the future, but hopefully home prices will stabilize and maybe even drop. There are indications as of the beginning of June, that home prices are slightly lower than they were at their peak and that homes are staying on the market longer. Couples hoping to be divorced by the end of 2022, may only have to co-own the home for a few years with all the details of co-owning being addressed in the separation agreement. Issues like who pays for what and when to sell the home will all be outlined in great detail in your agreement. There are other financial issues that must be taken into account before the decision of co-owning can be agreed upon, which is why including a Certified Divorce Financial Analyst (CDFA®) on your collaborative team is highly recommended. A CDFA can provide comprehensive and sophisticated options for settlement so the team will know if co-owning is financially viable. The team wants to know when a settlement option will cause substantial inequity or hardship to either party.
Since the Collaborative Law Practice is a client-centered, interest-based settlement model, this type of negotiation may be easier and more efficient in a collaborative setting than it would be in litigation. Why? Because Collaborative Law takes into account the parties’ needs, concerns and goals and your collaborative team will work together to find something the works best for you and your family. The team, typically made up of two collaborative family law attorneys, a divorce coach, and a divorce financial analyst, will explore all your options in a neutral setting.
In litigation, this type of exploration is rare, as financial information is typically used as a unilateral weapon rather than as a shared dynamic tool. Without the necessary information of future financial impacts, a judge in litigation may order the marital home to be sold without any considerations of your ability to find alternative housing.
There is no doubt that the Collaborative Law Practice greatly benefits clients and their children, because the clients remain in control of the process and are more vested in the outcome. The professional collaboration across the disciplines enables divorcing couples to achieve very high-quality, durable settlements that reflect their combined needs, especially during difficult economic times.