If you are not in a position to refinance the house or pay your spouse immediately, and there are not enough assets to offset your spouse’s interest in the home, you might consider giving your spouse a mortgage on the home, or securing your spouse’s interest in the home using an equitable interest notice.
If you have determined what the spouse will be paid for his or her interest in the home, and the terms of the agreement, your lawyer can prepare a mortgage document to secure the spouse’s interest in the home in the land records. That way, even if you die, your spouse’s interest is protected.
A negotiating point will be whether or not the mortgage secured against the home will bear interest. Sometimes, it makes financial sense to pay your spouse interest on the mortgage which can accumulate if he or she has to wait a long period of time for the money rather than having to immediately sell or refinance the house. Understand, however, that even if the house value falls, you will still owe the amount of money set forth in the mortgage.
For example, let’s say your home is worth $100,000.00 and there is an $80,000.00 mortgage on the home, leaving $20,000.00 in equity. You and your spouse have agreed to divide your assets 50/50 and you are going to keep the house, but you are unable to pay your spouse for his or her $10,000.00 interest in the home. You agree to execute a mortgage in favor of your spouse that you will pay in a lump sum in 10 years. This mortgage will be documented by your attorney, who will draft the proper papers, and record them on the land records.
The next question is whether this mortgage will bear interest for your spouse. Your spouse is waiting ten years to get $10,000.00. If she or he forced you to sell the house, he or she would get money immediately. Having to wait for the money may mean that your spouse is not able to buy another house or condominium immediately and has to make certain sacrifices. In such situations, having the mortgage pay interest is a desirable option.
If the market goes up, and in 10 years the $100,000 house is now worth $200,000, you are still obligated only to pay the $10,000 (plus interest, if negotiated) agreed upon in the original divorce agreement. Your spouse then gets $10,000 (plus interest, if negotiated) and you keep the $190,000 value (less any outstanding mortgages) of the house. If the value of the house skyrockets to $300,000.00, you would get to keep all of the extra equity by virtue of the house’s appreciation, and you would only owe your spouse $10,000.00. For more information on the financial aspects of divorce, see http://www.peace-talks.com/finformation.php. Also visit the Peace Talks resource center at
http://www.peace-talks.com/resources.php.
Excerpted from Your Divorce Advisor: A Lawyer and a Psychologist Guide You Through the Legal and Emotional Landscape of Divorce (Simon & Schuster/Fireside 2001). For more information: http://www.yourdivorceadvisor.com/.
For more information contact Peace Talks www.peace-talks.com
(C) 2008 Peace Talks Mediation Services, Inc.
Related posts:
- Negotiations Once the Value of the House is Set
- Sell or Keep the House?
- Determining the Value of the House
- Arrangements for the Sale of Your Home
Tags: Creating Fair Settlements, Dealing with Your Spouse, Your Responsibilities, Your Rights
