Marital property – your home, investments, retirement account, or business – may be divided by agreement or court order to allocate interests equitably (but not necessarily equally) between divorcing spouses.
Negotiating an equitable settlement.
Except for pre-marital property, or gifts or inheritances to one spouse during the marriage, a couple’s home, cars, investments, retirement accounts and other property acquired during the marriage are marital property subject to division upon divorce, regardless of who holds the title. Since courts can adjust property interests equitably (e.g. ordering sale of a jointly owned home, or transferring a portion of husband’s larger 401k retirement savings account to wife’s IRA), lawyers often help clients negotiate a mutually acceptable property settlement. For example, spouses may agree that husband deed the family home to her in a tax-free ‘interspousal transfer’ as an approximation of the prospective value of his unvested pension or stock options. Collaborative family lawyers help clients develop creative options that allow both parties to achieve their goals.
Short-selling the ‘underwater home’
Divorcing spouses often owe significant home mortgage debt incurred during the marriage. For example, sometimes the family home is ‘underwater’ (resale value less than the mortgage) and one spouse proposes as part of the divorce settlement to simply stay in the home and assume the mortgage payments. However, the non-resident spouse remains liable for the entire mortgage, leaving her credit at risk of non-payment by the resident spouse, and may encumber her ability to borrow to buy another property. Rather than simply letting the lender foreclose and sue either or both spouses for the deficiency, spouses who are concerned about their credit will collaborate in negotiating a ‘short sale’ with the lender’s permission. This allows the spouses to sell the home for less than the mortgage and perhaps obtain the lender’s forgiveness of the loan balance as well.