Over the years in my practice with divorce cases, I’ve noticed that many clients have questions about who will get the house when they dissolve the marriage. This article explains how Michigan divorce laws make a decision on who gets the house.
Will one spouse get preferential treatment in the matter? Will the couple need to sell the house to a third party to settle their affairs? Or, will neither of them get the house because it is actually owned by the bank?
These are common questions, and the answers are complicated because they depend on many factors. The two biggest considerations are who can afford to keep the house and is it financially worthwhile for that person to retain ownership? Let’s look at each of these factors.
How Do Michigan Divorce Laws Decide Who Gets the House?
Many factors go into the decision of who gets the house. The court considers your financial status, as well as your personal conduct through the proceedings – as well as that of your spouse.
Before moving forward, it is important to adopt a principle of no social media for the duration of the divorce process. The reason, being that the court will and does take your online presence into account when making a determination.
Michigan divorce laws dictate the court to answer these questions by establishing the value of the house. There are several ways to get this information. Usually, the best course of action is to hire a real estate appraiser.
Establishing Your Homes Value: Real Estate and Market Appraisals
A good lawyer will be able to recommend a real estate appraiser to meet your needs. Often, there are multiple appraisers serving the area. The lawyer will know which appraiser has the best understanding of the county’s market for homes such as yours.
There are also differences between appraisers. Some appraise higher while others will be lower. It will be important to choose the real estate appraiser that is the best fit for your circumstances.
Another piece of evidence about a home’s value is a market study by a licensed realtor. A market study shows the values of other homes in your area that are similar to your property.
Why Does This Information Matter for the Court?
While this information is not directly admissible in court, the licensed realtor can testify on your behalf if the issue is contested. The market study can be given to the appraiser who can use that information in establishing the home’s value, which is admissible in court.
Your lawyer knows the value of helping the judge see the overall picture, and a reliable market study from a realtor who is familiar with court proceedings can help in this regard.
If You Can’t Afford an Appraisal…
The third way of establishing the value of your real estate is by using the state equalized value (SEV) established on your property taxes. We call this “the Poor Man’s Appraisal.”
Every property has an established SEV, and it is readily available information. If you cannot afford an appraisal and a market study, this may be the best information you can get to use.
Everyone in the system, judges and lawyers alike, knows that the SEV is doubled to approximate the home’s actual value.
Now, this number may or may not be an accurate reflection of the home’s true value. It may in fact by tens of thousands of dollars off in either direction, but it is an accepted means of establishing value according to the rules of evidence. It’s far from ideal, but it is acceptable if you cannot afford a more accurate appraisal.
Using All Three Options: SEV, Real Estate Appraisal, and Market Appraisal
Your best course of action is to provide the licensed realtor and licensed appraiser with the home’s SEV and let them do their jobs. A good realtor will know the area well and will give all possible information to the appraiser, who will determine the home’s value.
Determine Your Homes Equity: Value – Mortgage = Equity
Once the home’s value is known, determine the amount of equity in the home. Equity is the difference between the home’s value and the outstanding mortgage on the property. /p>
If a property is appraised at $70,000 and the mortgage is $50,000, there is $20,000 worth of equity available. That is money that will come to the owners of the home in the event of the sale.
Deciding Who is Most Likely to Refinance: Equity Versus Debt
Property values rise and fall. Imagine, the home is valued at $70,000 and the mortgage outstanding could be $90,000.
This situation is called being “underwater.” If you are underwater, the home is worth less than the amount of the debt owed on it.
The amount of debt or equity in the property is important to know when determining who has the best claim to the home. Which partner has the capability to refinance the mortgage?
Deciding Who Will Takeover the Mortgage
Many factors go into this determination: who has the best credit score, what are your individual incomes, is there a large amount of credit card debt, and who will the bank be most likely to give a new mortgage loan?
The mortgage is likely in both of your names, currently, and the goal is to pare that down to one name on the loan.
This has to be the person who, in the eyes of the bank, is most able to take on that debt. Michigan divorce laws and judges will not allow both of you to continue being responsible for the same loan since you are trying to separate.
Debt and Joint Financing
There are rare instances when the courts will allow the current joint financing to continue. If the home is worth less than the amount owed on the mortgage and neither party is capable of assuming that burden, you both may agree to take more time to sell the property.
The judge will set a time limit, such as five years, so you can wait to sell until the market improves. You both would need to agree to this. Then, the situation is revisited at the end of the time allotment.
Or, it may be revisited at such a time as one of you is able to get the financing needed to purchase the home outright.
Determining Who Can Refinance
How does the court determine who can refinance the property? Typically, one party might be able to get the proper loans and the other party might not. If you cannot afford to refinance the home, under Michigan divorce law, you are not going to get the house.
Either the home will be sold to a third party, or the spouse who can get the loan will be ordered to pay you equity for your share.
This can get uncomfortable if there are hard feelings between partners. The person who cannot afford to keep the house may try to be vindictive and force a sale to a third party so that no one gets it. Even if you are furious with your spouse, this is not the best route to take.
Selling the House to a Third-party
First of all, a judge is very unlikely to allow it. Secondly (and this is a much more logical reason), you are likely to receive more money if you allow your spouse to purchase your share of the home from you.
Let’s look at an example of splitting equity and why the amount you receive could be much less than what you expect.
Our example home that was appraised at $70,000 and has a $50,000 outstanding mortgage has $20,000 in equity. If you sell to your spouse, the two of you share that amount
If you force a sale to a third party, however, the actual selling price of the home is quite likely to be lower than the appraisal value. It might sell for something like $60,000. Now, instead of splitting $20,000, the two of you only split $10,000.
To most people, even $10,000 sounds like a lot of cash, and it’s certainly tempting for some to stick it to the ex-partner as much as possible. But how much of that $10,000 from the house will you actually see?
Remember that there are many large bills related to the divorce that you will need to pay. Do you already have the cash for your accumulated attorney’s fees, real estate agent and
appraiser fees, and the other costs of the divorce?
Most people do not, and these fees must be paid out of the profits from the sale of the home. And, these fees are paid BEFORE the equity money gets split up between the two
If our hypothetical home sold to a third party, we would have $10,000 to work with.
The attorneys will need $2,000 each. Now there is $6,000 left to split, but other fees will have to come out first. Suddenly, your windfall has dwindled to next to nothing.
On the other hand, if you sell to your spouse, you would receive your share of the equity. Subtract your attorney’s fee from the $10,000, and there is $8,000 left for you that is NOT shared.
Should You Sell to Your Spouse?
Even after paying your share of the other associated fees, you are almost sure to come out financially ahead. For most people, the choice is easy. It’s much better policy to allow your spouse to have the house (and the mortgage) and keep more of the shared equity for yourself to start your new life.
Your lawyer is likely to encourage you to accept the appraised value and allow the other spouse to refinance simply because it will be advantageous to you. You nearly always will end up with more cash from the home than if you insist on selling to a third party.
Of course, there are other factors that can and should be considered in this decision. You are going through a traumatic and life-changing event. Perhaps this house has a significant meaning to you, over and above its financial value.
You’ll need to have a frank discussion with your lawyer weighing your capability to manage the financial load of the house and your attachment to it.
Factors to Consider:
Is this the house that the children have always lived in? Everywhere you look, you see memories of happier times, like the markings on the door frame where you measured everyone’s heights as they grew.
Are they younger and currently growing up here? You might not want to move them because moving would mean changing school districts. This is a traumatic time for everyone, and it might not be in the kids’ best interests to move right now.
Was the house inherited? This can play into the home’s value in your eyes, as well. For many older folks getting a divorce later in life, the house may have a lot of special meaning.
Perhaps it was the home you grew up in. This can be a huge factor in determining the home’s worth to you.
Personal Versus Financial: Should You Refinance?
The decision ultimately needs to be based on financial means. Do you have the resources to invest in this home? Even if you have the capability to refinance the home, the question
becomes, “Should I?”
In addition to the mortgage itself, you have to factor in the property taxes, upkeep and maintenance, the monthly bills for utilities, and more.
Can you get the Homestead Exemption on your taxes? Will keeping this home mean that you neglect other financial needs like saving for retirement? You’ll need to consider all of these factors and more when weighing the home’s emotional value.
Ask Your Lawyer to Go Over the Facts With You
Thankfully, one part of your lawyer’s job is to help you consider the matter rationally and logically. If keeping the home would be a terrible financial decision, your lawyer will
caution you and help you rethink the whole idea.
Your lawyer lays out the black and white considerations you need to think about, such as your retirement and your overall financial health. Take advantage of these legal advisory services. And, when your lawyer offers to put you in touch with a reliable financial advisor.
Ask Your Lawyer for Service Referrals
Your lawyer is more than an advocate through the court proceedings. He or she can introduce you to other professionals that will help you navigate the confusing parts of getting your life back on track as a single person. You may need a bankruptcy attorney, a financial advisor, an estate planner, or other help from professionals.
Remember that going through a divorce is like going through the death of a loved one – or other traumatic events. Your entire future depends on the moves you make right now, during the divorce process.
Get the help you need in order to move on to the best life possible. Don’t try to make these big decisions alone. Professional guidance can make all the difference.
And here is one more takeaway thought. Deciding who gets the house is just one small piece of the puzzle. There are countless other details to settle as you dissolve the partnership with your spouse, and the more civility you can muster toward the other party, the better.
Even though you are undoubtedly hurt beyond anything you ever imagined, try to treat your soon-to-be-ex with civility and respect. Do this, no matter what you perceive the other party has done or doing to you.
The process will be easier, less traumatic, and likely less expensive for everyone if you show civility. Michigan divorce laws take into account the manner of civility you demonstrate throughout the legal process. Keep in mind, the Court deals with these cases all the time. Keep it civil, and everyone will have the chance to move on after a clean break.
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