BlogDivorce Financial PlanningFor many Minnesota couples, the house is not only their largest asset—it is also one of the most emotional and complicated decisions they will make during divorce.
Should one spouse keep the house? How much does that spouse owe the other? What happens to the mortgage? Does signing a Quit Claim Deed remove someone from the loan? And what happens if neither spouse can afford the house on their own?
There isn't one answer that works for every couple. Understanding the financial pieces before making a decision can help you avoid an agreement that looks fair today but creates financial problems later.
Minnesota generally follows the principle of equitable division of marital property. That does not necessarily mean every asset is divided exactly 50/50.
If a home was purchased during the marriage with marital funds, the equity is generally considered marital property, regardless of whether one or both spouses are listed on the deed.
There can be exceptions when a spouse has a nonmarital interest in the property. For example, a spouse may have owned the home before the marriage or used an inheritance or gift to make a down payment. Determining and tracing a nonmarital claim can become complicated, particularly when the home has been owned for many years or has been refinanced.
For many couples, however, the bigger question isn't technically who gets the house?
It's:
Can either spouse realistically afford to keep it?
A simple starting point is:
Current Home Value − Mortgage Balance = Home Equity
For example, assume your home is worth $600,000 and you owe $300,000 on the mortgage.
That leaves approximately $300,000 of gross equity.
If all of the equity is marital and the couple agrees to divide it equally, each spouse's share would theoretically be $150,000.
However, this simple calculation doesn't necessarily account for potential selling costs or taxes. Those issues may be important when comparing a house buyout with a potential sale.
And it doesn't automatically mean the spouse keeping the house must write the other spouse a $150,000 check.
There are several ways to structure a buyout.
Suppose one spouse wants to keep the $600,000 home.
The spouse leaving the home might receive their share of the equity through:
This is where financial planning becomes especially important.
$150,000 of home equity isn't necessarily financially equivalent to $150,000 in a traditional retirement account.
Taxes, liquidity, investment potential, transaction costs and future expenses can make two assets with identical values on paper very different financially.
Looking only at the dollar amount can therefore produce a settlement that appears equal without necessarily being financially equivalent.
This is an important question when one spouse is keeping the house.
If the home were actually sold, the couple would likely incur expenses associated with the sale. Depending on the transaction, those might include real estate commissions or broker compensation, title and closing expenses, transfer-related costs, repairs, concessions and other costs of sale.
For example, a house with a $600,000 market value and a $300,000 mortgage may appear to have $300,000 of equity. But if the house were sold, the amount the couple actually received after paying the mortgage and selling expenses could be lower.
When one spouse is buying out the other's interest rather than selling the property, couples may disagree about whether hypothetical future selling costs should reduce the value used for the buyout.
There isn't necessarily one calculation that is appropriate for every divorce. The important thing is to understand which valuation method is being used and why so both spouses know what is—and isn't—being accounted for.
No.
This is one of the most important distinctions to understand when dealing with a house in divorce.
A deed deals with ownership of the property.
A mortgage deals with responsibility for the debt.
If one spouse signs a Quit Claim Deed transferring their ownership interest to the other spouse, that does not automatically remove them from the mortgage.
If both spouses remain borrowers on the mortgage, the lender may still consider both responsible for the debt—even if the divorce decree says one spouse is responsible for making the payments.
That can create significant financial and credit risk for the spouse who moved out.
Not always.
Refinancing is one method of removing a spouse from an existing mortgage, but it isn't the only possibility.
Depending on the loan and lender, a mortgage may potentially be assumable, or the lender may offer another process for releasing one borrower.
This can be especially important for couples who have an existing mortgage with a significantly lower interest rate than current available rates.
Before automatically agreeing that the spouse keeping the house must refinance, it can be worthwhile to contact the mortgage servicer and determine what options actually exist.
Questions to ask include:
The answers can have a major impact on whether keeping the house is financially realistic.
This needs to be addressed before the divorce agreement is finalized whenever possible.
A spouse may be able to afford the monthly payment under the couple's current mortgage but still be unable to qualify individually for a refinance or assumption.
Income, debt, credit score, interest rates and the size of the required equity buyout can all affect qualification.
Possible solutions might include giving the spouse additional time to refinance, restructuring the property settlement, delaying the sale of the home, or agreeing that the house will be sold if financing cannot be obtained by a specific deadline.
The important part is having a clear Plan B.
An agreement that simply says one spouse "will refinance" without addressing what happens if they cannot qualify can create problems months or even years after the divorce.
Yes.
A Minnesota couple does not necessarily have to remain married until their house is sold.
The divorce agreement can establish how the property will be handled after the divorce, including issues such as:
Clearly addressing these details can prevent disagreements after the divorce is finalized.
Taxes are another reason to look beyond the home's current market value.
When a primary residence is sold for more than its tax basis, there may be a taxable capital gain. Federal tax law provides a potential exclusion for qualifying gains from the sale of a principal residence, but the amount available and whether a person qualifies depend on the circumstances.
Divorce can make the analysis more complicated.
For example, the timing of the sale, how long each spouse owned and used the home, the home's adjusted tax basis, improvements made over the years, and whether the home is transferred to one spouse as part of the divorce can all potentially affect the tax analysis.
This can become particularly important when a home has appreciated substantially during a long marriage.
A spouse who keeps a highly appreciated home may eventually bear tax consequences that are different from those associated with other assets received in the divorce.
For that reason, couples should be careful about assuming that the home's current value minus the mortgage tells the entire financial story.
Tax laws are complex and individual circumstances vary. Divorce Smart does not provide tax or legal advice. Couples should consult with a qualified tax professional regarding the potential tax consequences of selling, transferring or retaining a home as part of a divorce.
Wanting to keep the family home is understandable. It may provide stability for children, preserve a familiar neighborhood and carry years of memories.
But the financial question should be evaluated separately from the emotional one.
Before deciding to keep the house, consider the entire cost of ownership, not just the mortgage payment.
That includes:
Also consider what you may be giving up in exchange for the house.
If keeping the home requires giving your spouse substantially more retirement assets, for example, you may have a comfortable house today but fewer resources available for retirement.
The question isn't simply:
"Can I make the mortgage payment?"
A better question is:
"Can I afford this house and still accomplish my other financial goals?"
Sometimes neither spouse keeping the house is the best solution.
Selling may allow both spouses to reduce debt, establish emergency savings, purchase or rent more affordable homes, and begin their separate financial lives with greater flexibility.
For some families, keeping the house makes excellent financial sense.
For others, selling it creates the strongest financial foundation after divorce.
Neither decision is inherently right or wrong.
The house is only one piece of the overall divorce settlement.
A sound financial analysis should consider the house alongside:
Two divorce settlements can have the same value on paper and produce very different financial outcomes over time.
At Divorce Smart, we help Minnesota couples understand the financial implications of their divorce decisions before they finalize their agreement.
As a Certified Financial Planner™ professional (CFP®), Certified Divorce Financial Analyst® (CDFA®) and Minnesota Rule 114 Qualified Neutral, Michelle Leisen brings more than 25 years of financial planning experience to the divorce process.
Through mediation and financial-neutral services, we can help couples evaluate questions such as:
The goal isn't simply to divide what you have today. It's to understand what those decisions may mean for both spouses tomorrow.
Considering divorce in Minnesota and unsure what to do with your house? Contact Divorce Smart to schedule a consultation and explore your options before making a final decision.
This article is provided for general educational purposes only and is not intended to provide legal, tax or accounting advice. Divorce Smart and Michelle Leisen do not provide legal or tax advice. Laws and tax rules can change, and their application depends on individual circumstances. Consult with a qualified attorney, CPA or other tax professional regarding your specific situation.
Check the background of your financial professional on FINRA's BrokerCheck. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
