Why co-owning the family home after divorce can be risky

Property division can be a challenging aspect of any divorce. Finding an equitable split of property, digital assets and debt responsibility can require numerous compromises and negotiations to reach an acceptable solution. Unfortunately, one of the biggest physical assets can also lead to the most confusion.

When making decisions about the family home, it seems obvious that there are two options: the house is sold and the profits are split, or one spouse keeps the house after either buying out the other spouse or gaining ownership as part of the overall financial settlement. In recent years, divorcing couples have started exploring a third option: co-ownership. Unfortunately, this decision can be risky.

Even in an amicable divorce, the two parties might disagree on fundamental decisions. By keeping the house as an income property, there is a significant likelihood that those differences in opinion might eventually come to light. Certain, specific financial risks follow this decision, including:

  • Hidden damage to your credit rating: While the algorithm is generally fairly bright, having both names on the mortgage could possibly mean that the debt counts against both party’s debt-to-income ratio. It could be possible to separate the debt for accounting purposes, but this might entail additional effort from legal and tax professionals.
  • Continuous involvement: A popular choice is to continue ownership and rent the property – sharing the income but not sharing the space. Unfortunately, this means that the former spouses will likely have to work together over and over to either maintain the property or handle renter questions. This continuous involvement can quickly turn even the most amicable relationship sour.
  • Unexpected death: Without clear language in the mortgage paperwork and estate plan, the death of one of the ex-spouses can become a logistical nightmare. With half the ownership of the house staying with the live partner and half transferring to the deceased partner’s heir, there could be numerous entanglements to unravel.

No matter what your final decision, it is wise to work with a skilled family law attorney. A legal professional can provide guidance from start to finish and answers tailored to the specific needs of your situation. If you choose to remain co-owners of your property, enlist the aid of a lawyer as soon as possible.