Can a Couple Decide to Keep the Property Jointly After the Divorce?
Divorce often involves tough decisions, especially when it comes to dividing assets like the marital home. While many couples opt to sell the property or arrange a buyout, some choose to continue owning the property jointly, even after the divorce is finalized. Although this arrangement may not be the most conventional, it can provide financial and logistical benefits in certain situations. However, it also comes with challenges that couples should carefully consider before committing.
In this blog post, we’ll explore why some divorced couples choose to keep joint ownership of their property, how to structure such an arrangement, and what factors to consider before deciding if it’s the right choice for you.
1. Reasons Couples Choose Joint Ownership Post-Divorce
There are several reasons why a divorcing couple may choose to retain joint ownership of a property:
A. Financial Stability
If the housing market isn’t favorable or if the home’s value has declined, selling immediately may not yield the best financial outcome. By holding onto the property, the couple can wait until the market improves, potentially increasing their return on investment.
B. Providing Stability for Children
For divorcing couples with children, keeping the marital home can provide a sense of stability and continuity. Children can remain in the same home, neighborhood, and school, which can help them adjust to the changes brought by the divorce. Some couples even opt for a "birdnesting" arrangement, where the children stay in the marital home while the parents take turns living there and in separate residences.
C. Income Generation
If the property can be rented out, it can generate income that benefits both ex-spouses. For example, if the marital home is rented, both parties can use the rental income to cover mortgage payments, property taxes, or other shared expenses. This approach can be particularly useful if neither spouse can afford the mortgage independently but they want to retain the property as an investment.
D. Tax Advantages
There may be certain tax advantages to keeping the property jointly, especially if it’s an investment property or if both parties are entitled to capital gains tax exclusions on the eventual sale. Consulting a tax advisor can help couples understand any potential benefits of joint ownership.
2. Structuring a Joint Ownership Agreement
If a divorcing couple decides to keep the property jointly, it’s essential to formalize the arrangement through a joint ownership agreement. This agreement should cover important details to avoid future disputes and ensure both parties understand their rights and responsibilities. Key elements to include in the agreement are:
A. Division of Expenses
Outline who will be responsible for ongoing expenses, including mortgage payments, property taxes, insurance, maintenance, and repairs. Will both parties contribute equally, or will one party take on a larger share? Clearly defining these obligations will help prevent financial conflicts down the road.
B. Sharing of Rental Income (If Applicable)
If the property will be rented, specify how rental income will be divided and used. For instance, you might agree to split the income equally after deducting property management expenses. Also, consider who will handle tasks such as finding tenants, managing repairs, and collecting rent.
C. Deciding on Future Sale Terms
Establish criteria for when the property will be sold. Common triggers include:
A certain period, such as five or ten years.
When the youngest child reaches a certain age or graduates from high school.
When the housing market reaches favorable conditions for a sale.
If one spouse decides they no longer want to retain their share.
Also, outline what will happen if one party wishes to sell while the other does not, including whether one party has the right to buy out the other’s share.
D. Setting Communication and Decision-Making Protocols
Even after divorce, maintaining a jointly owned property requires clear communication and collaboration. Outline how decisions will be made regarding the property, how often you’ll review the arrangement, and what steps you’ll take if disagreements arise.
3. Legal and Financial Considerations
Before deciding on joint ownership, it’s important to evaluate the legal and financial implications. Here are a few things to keep in mind:
A. Mortgage Responsibility and Credit Impact
If both parties’ names remain on the mortgage, both are legally responsible for payments, even after the divorce. Missed payments can impact both individuals' credit scores, so it’s critical to establish a plan for covering the mortgage.
If one spouse will be making payments on behalf of both, consider creating a separate account specifically for the mortgage and documenting payments to protect both parties.
B. Tax Implications
Retaining joint ownership can have tax implications, particularly if rental income is generated or if the property’s value appreciates over time. Some potential tax considerations include:
Capital Gains Tax: When you sell the home, capital gains taxes may apply based on how much the property’s value has appreciated. Certain exclusions may be available if the property was used as a primary residence, so consult with a tax professional.
Deductions: If one spouse is making mortgage payments, they may be eligible to claim tax deductions on interest payments. Discussing these aspects with a tax advisor can help you take advantage of potential tax benefits.
C. Liability and Insurance
Since both spouses will still have a financial interest in the property, it’s essential to ensure that adequate insurance coverage is in place. This includes homeowners insurance as well as liability coverage, especially if the property is rented. Review the policy to ensure both names are listed and that the coverage amount is sufficient.
D. Updating Legal Documents
If you and your ex-spouse agree to keep the property jointly, update your estate plans to reflect this arrangement. Include provisions in your wills or trusts that outline what should happen to each person’s interest in the property in the event of death.
4. Pros and Cons of Keeping the Property Jointly
As with any arrangement, keeping joint ownership of the property after divorce has its benefits and challenges. Here’s a summary:
Pros
Financial Investment: Holding onto the property allows both parties to benefit from potential appreciation in value.
Stability for Children: Retaining the home can provide stability for children, reducing the number of major changes they experience during and after the divorce.
Income Potential: Renting the property can generate income, which may help cover costs and even provide extra income for both spouses.
Cons
Financial Entanglement: Joint ownership means that financial ties are maintained, which can lead to potential conflicts or complications, particularly if one party wants to move on financially.
Ongoing Communication: Both parties must communicate regularly and cooperate on property-related decisions, which can be challenging if relations are strained.
Liability Risks: If one spouse fails to uphold their financial obligations (such as mortgage payments), the other spouse’s credit could be impacted.
Conclusion
Joint ownership of property after divorce is an option that some couples choose for various reasons, including financial considerations, children’s stability, or market timing. While this arrangement can offer benefits, it also requires careful planning, clear communication, and a strong joint ownership agreement to ensure that both parties’ interests are protected.
If you’re considering keeping the property jointly after divorce, it’s wise to consult with a Certified Divorce Real Estate Expert (CDRE), a tax advisor, and an attorney. These professionals can help you understand the legal, financial, and practical implications of joint ownership, enabling you to make an informed decision that supports your financial and personal goals.