One choice you do not have is to quit claim deed the property to one of you. Doing so simply removes one person’s control over a property while they continue to be liable for the debt (because their name is still on the mortgage.)
So let’s review these two options.
On to option two, refinancing. The biggest problem here is whether one of you can qualify for a new mortgage without your spouse’s income. It is much more difficult to get qualified these days and you may need to liquidate other assets to reduce the size of your loan or appeal to a family member to co-sign.
There is an option three that some couples consider but is a bad idea. You both continue to own the house. In the current housing market, many couples consider not splitting this asset until some future date, for example once the kids are grown or the market rebounds. Of course the house is an investment you both want to handle with care. Perhaps (you think) you can continue to own it like business partners and when things are more favorable you will sell. Problem is – you are not business partners. In fact you tried being partners already and it didn’t work out, remember?
Joint ownership means joint decision making which we can assume doesn’t go well between you two. You have already made the difficult decision to separate your lives, so that’s what you should be seeking to do in your divorce – separate your lives. This is not the time to begin a joint business venture with your soon to be ex that will only bring you more years of stress and confrontation. The future legal fees and court costs you risk by not taking care of this asset today can be weighed against your potential loss from selling in a down market.
Another thought. Don’t let your emotional ties to the house make you blind to its true value. Too often, one person is willing to give away everything if s/he can just keep your house. But all assets are not created equal. Houses are expensive. They require constant maintenance and upkeep. Appliances need to be replaced, roof’s repaired, gutters cleaned – all of this costs money for an asset that is only worth what someone is willing to pay at a given time. If you do sell you will have closing costs and realtor fees that further reduce the actual value of that asset. Other assets you divide in a divorce may better retain their values (conservatively invested funds for example) but of course come with their own set of risks (market fluctuations, tax liabilities). Just be wary that your desire to keep the house doesn’t lead you to let go of other assets you are entitled to in a divorce agreement.
So while there are often no good options, here are some things to think about when making your decision:
1. If you have children, both parents will need a decent residence for the children to live in when they are with you. Two residences are more expensive than one. Downsizing might be necessary.
2. Run the numbers – can you afford to make the payments to stay in this house?
3. Consider closing costs & realtor fees when refinancing, factor these in when dividing your assets for your divorce agreement.
4. Consider paying for a home inspection – not just an appraisal – when determining the value of your house. A house is only worth what a buyer will pay, and a buyer will have the home inspected. Few appraisers will get on their hands and knees in your crawlspace to assess the true condition, and thus potential value, of your house.
There is nothing pleasant about divorce and making hard choices about the family home is one of the most difficult hurdles in the process. Seeking a realtor and mortgage broker familiar with specific issues that arise during a divorce will help you avoid costly mistakes.