What do Divorced People do When One Keeps the House?

[Misunderestimator]

A house that is jointly owned, and for which they are both on the mortgage and the title?

My ex-partner and I are in the process of dividing our property, and we're at a loss as to how to deal with the house. We've agreed to her giving me half the equity (as we have both paid equally into it from the start) as well as her paying me for half of all the improvements we've made (since we also paid equally for those).

She wants to keep the house which is fine with me, but I want to make sure that I don't end up with some huge tax penalty if my part of the equity is considered income. (I am planning to use that money to put a downpayment on a new house.) If we sold it, that wouldn't be an issue, but if I simply sign a quick deed and she gives me the money, I'm sure that's not going to work either. There must a process to purchase one half of another person's interest in a home, no?

Regarding the mortgage, she spoke with the mortgage company and the rep she spoke with told her that she would have to refinance if she becomes the sole mortagee, but I don't believe it. Surely there are certain processes one goes through in a divorce that would not be such a severe financial burden, especially if the interest rates are much higher than when we financed?

Any other gay people here who have gone through this?

(On edit... apologies to the mods... I never would have guessed that this belongs in the lounge, or I would have put it there. Now that it's here dear fellow DUers, please don't sully it up with kitties or anti-kerry crap, or trolls, or jokes about Ivan hitting Florida. ;) Thanks)

(Of course, you can do whatever you want, it's a free country :))

[radwriter0555]

1. TALK TO YOUR TAX LAWYER. ALWAYS before you divorce talk to the TAX

lawyer, tax accountant, tax paralegal, whomever you use; USE SOMEONE WITH SERIOUS EXPERTISE.

Honey don't go to H & R block.

HIRE someone to do it RIGHT.

[Misunderestimator]

2. We're gay, therefore not divorcing. It might be difficult to find a

tax attorney who can deal with this in the area I am, but I'll give it a shot. Thanks.

[napi21]

5. First poster still gave you the BEST advice!

In your case, this isn't a whole lot different than two friends starting a business together, and they have a falling out.

Talk to a good tax attorney!!! I'm not usually in favor of lawyers, but there really are situations where they are critical.

[LynneSin]

15. I agree!

I'm sure there is a local GLBT center in your area that might be able to recommend lawyers that are experienced with this type of issue.

Good Luck with everything hun

:loveya:

[Misunderestimator]

18. Local GLBT... LOL... not a chance.

But I agree that it's good advice, and I'm going to take it.

Thanks! :loveya:

[LynneSin]

24. In the NE, it's the best place to go

I know RBNYC works at one of the top GLBT centers in the country. But you're in Florida, I should have known better!

[miss_kitty]

7. ask someone if they know of anyone who has expertise in

property division between domestic partners. findlaw has a referral service.

http://www.findlaw.com/

[SoCalDem]

23. Any two people whose incomes are combined to qualify

for a mortgage, must be legally "separated" when it comes to mortgages..

My friend is going through something simliar.. Her "boyfriend" is on the mortgage, and she wants him O.U.T., but she must legally "buy him out" and get the mortgage in only her name..like a re-fi..

I think they will end up selling the darned thing, and then fighting over the proceeds...

Don't sign ANYTHING, until you get a real estate lawyer.. Even if it costs you, it;s worth it... Both of you would probably share the cost of the lawyer.. It will protect each of you..

Good luck :)

[miss_kitty]

4. yeah-pay a little now

save A LOT later-including a decent relationship with your ex.

[sbj405]

3. I believe the part about the mortgage is correct

A friend who was divorced was told the same thing. Must refinance to get her name off the mortgage. But I agree in consulting with an experienced attorney. It's a tricky situation and you don't want to get screwed. Good luck.

[sfecap]

6. First, see a real estate attorney...

But generally speaking, if the deed is in both names, you can quitclaim your interest to the property, and legally remove your ownership interest. If you have owned the property for more than 24 months, and it was your primary residence, you may sell your interest and receive up to $250,000 before being hit with capital gains taxes.

She shouldn't have to refinance the property unless she wants to take cash out. (Although the Mortgage holder may have specific requirement regarding material changes in financial/ownership status. Check the note and see what it says....) She can also consider a Home Equity LOC if she needs cash to buy you out. You will have to notify the mortgage company that you are no longer an owner in the property so that you will not be liable if the mortgage isn't paid. (An affidavit and copy of the Quitclaim Deed should suffice.)

Bottom line....have an attorney look at the sitution and follow their advice.

[Misunderestimator]

12. Thanks for reminding me about the 24 month thing.

We've owned it for less than a year. Shit. On the other hand, even if it is only a year, as long as I reinvest the money within 2 years in another primary residence and don't end up with any profit, I'm still ok, right?

I will go see a tax/real estate attorney for sure.

Thanks.

[sfecap]

16. Nope, not OK....

Even if you roll over any profit into a like investment (another house) you are subject to capital gains if you haven't owned the primary property for 2 years. The "like investment" rule doesn't apply anymore, unless it was an investment property...then that gets into 1031 exchanges, etc...

There are ways around this in your case. You could accept a smaller lump sum up front, along with a monthly payout for the balance to mitigate the tax hit.

You definately have to see a good real estate attorney regarding this. They'll be able to advise you on the tax implications.

[Ms. Toad]

35. If you didn't own it for 24 months...

There is probably not much in the way of capital gains to worry about. Your tax professional (see suggestion below) can help you figure out the basis based on original investment and post purchase investments. Chances are, if you renovated it you have a loss rather than a gain at this point. (I haven't done taxes since the deferred capital gains on home sales switched to exempt, so I don't know the details about the newer law.)

The one thing you may have to worry about that married folks don't is gift tax. Any time there is a transfer of more than a certain amount from one person to another (except a spouse) a gift tax accounting must be filed with your annual income tax return (the amount used to be $10,000 - although I believe the number has been increased). You have indicated that you each paid half of everything. Make sure that each of you has duplicates of our financial records for your time together which can establish equal contributions (paycheck/w-2, deposits to joint accounts, payments on jointly purchased items, etc.). Otherwise, if it appears that only one of you paid the down payment but both names went on the mortgage, the presumption is that half of the down payment was a gift and (if large enough) the donor is required to account for the gift on his/her annual tax return. Same thing goes for the split when a 50-50 piece of property ends up in the hands on one individual. If it goes from being jointly owned to being singly owned, unless there is a corresponding payment or other balancing of assets there may be gift tax liability.

Rather than a tax attorney, I would suggest you find an enrolled agent to help you. An enrolled agent is a tax preparer that is required by the IRS to pass a qualifying exam and take annual continuing education classes, and then is entitled to represent clients in IRS proceedings. I am currently an attorney, but I used to be an enrolled agent. (The enrolled agent continuing education requirements were too much in addition to full time in law school). I can tell you from having been through both sets of training (and having fairly complicated tax issues myself) that I would go to an enrolled agent for tax matters before I would go to either an attorney or CPA. Tax attorneys may be better on the theoretical and winning in court once it gets there, but you need down to earth specific advice at this point. An enrolled agent is generally better prepared to offer that. You'll still need an attorney for separation paperwork (mortgage, deeds, etc.).

As far as the snide comment someone made about H&R Block - while I would agree that it is probably a bad idea to depend on your run of the mill H&R Block employee with a matter this complex - their specialty is simple tax returns and refund anticipation loans - their full basic tax class is excellent. It used to cost around $200 and there should be fall classes starting any time now. It won't teach you everything, but it does cover gift taxes and home sales. Given the complexity of the tax questions associated with your separation, it might be a good investment so you at least have a good solid familiarity with the issues you will need to have a tax professional address.

[Rowdyboy]

8. Together, talk to a good, open-minded lawyer and ask for advice

You guys appear to be at least marginally friendly to each other and open to reason. It should be easy. My partner and his ex-wife parted friends and had no problems sorting things out fairly. I know its different for a gay couple, but since you're not opposing each other, it should be easy to reach an accomodation. Good luck and keep looking to your future which should be a wonderful adventure!

[bahrbearian]

9. Thanks for bring this up , I'm in a similar boat.

[Shoeempress]

10. Tax attorneys deal with this all the time whenever two unmarried people

own real property. It happens more than you know, and spending money on the Attorney is well worth every penny, and may itself be tax deductible.

[Nay]

11. I echo rad's advice. Having said that, a couple I know is divorced,

and when they did what you are doing with the house, the woman let the man keep the house, but did not have her name taken off the title. This caused total disaster, because she is now responsible for the mortgage, etc., as if she were still there. You must have your name removed from the title at all costs! Do not do anything else until you do this, and have a good tax lawyer do the paperwork.

I would think it would be perfectly normal for your partner to be required to refinance, since now the credit picture has changed (you are no longer an owner and your income cannot be counted for the present loan) and I would think she would have to qualify for a loan by herself.

[Misunderestimator]

13. On the qualifying for the loan, you're probably right...

But shouldn't there be a process to just qualify her separately but keep the interest rate the same?

[sfecap]

17. There might be...

Depends on the amount of change in the rate, her creditworthiness, etc.

If the Mortgage company wants to keep her business they'll work it out.

[Misunderestimator]

14. See, in just 15 minutes you have all convinced me to get an attorney.

And given me some great information... I welcome any other advice, but at least I'm sure I'll be seeing a lawyer.

[ulysses]

19. definitely get an attorney.

A couple of years ago, the ex of a friend of ours tried to stiff her on the house they'd bought. Our friend filed suit and we were subpoenaed since we'd helped them move in and had had a lot of conversations with them about how it was *their* house, even though the loan was only in the ex's name. The ex finally settled just as we were getting ready to go to trial and coughed up the cash.

Doesn't sound like you're in that kind of a situation, but get a lawyer anyway.

[Misunderestimator]

21. You're right, it's too risky in any case.

And I'm not in that kind of situation, fortunately. She'll be fair, and I'll be fair. It behooves both of us to do it the right way.

[Moonbeam_Starlight]

20. I've always wondered that myself

and I'm not gay.

It's a moot point, even if we hated each other, we couldn't afford two separate residences.

Best of luck to you, sorry you are having to go through this!!!!!

[OKNancy]

22. My ex husband signed a quit claim deed

and then I think we called the mortgage company and made me responsible for the whole thing. We didn't have to re-do the mortgage. I got the house, but also got all the bills.

( We had the same lawyer and had an amicable divorce - still friends after 25 years )

[HysteryDiagnosis]

26. Ask a republican.... they have more experience in the matter....

At least that is what the statistics say..... could be wrong.... this info might make some freepers shudder... especially if it is true like the prewar intelligence.

http://www.populist.com/04.13.dispatches.html

>>MARRIAGE WEAK IN CONSERVATIVE STATES.

While Republicans depict themselves as defenders of family values, strongholds of the GOP have the highest divorce rates in the country.

States of the old Confederacy have a divorce rate 23% higher than the rest of the country (4.8 vs. 3.9 per thousand persons), Doug Henwood noted in *The Nation* (7/5/04). "The 'red' states -- those carried by Bush in 2000 -- have a divorce rate 29% higher than the "blue" (Gore) states (4.5 vs. 3.5 per thousand). Makes you wonder about family values," Henwood wrote.

In 1994, Massachusetts, Connecticut and New Jersey ranked first, second and for having the lowest divorce rates, with 2.4, 2.8 and 3.0 per 1,000 population, respectively, according to the National Center for Health Statistics, while Oklahoma, Arkansas and Nevada had the highest divorce rates of 6.7, 7.1 and 9.0 respectively. The national rate was 4.6. For more information on divorce rates see ------> www.divorcereform.org

[Misunderestimator]

28. Now THAT's interesting, aint' it?

Familie values my ass.

[bratcatinok]

25. You can quit claim your interest in the property

to your ex but this won't absolve you of responsibility of repayment for the Note. The mortgage/deed of trust and the Note are 2 separate documents. The mortgage/deed of trust lays out who has an interest in the property (you, your ex and the lender). The Note lays out who is responsible for repaying the debt to the mortgage company.

The lender more than likely won't remove you from your obligation to repay the Note because they have no reason to. The lender is fully vested in being in as secure a position for repayment as they possibly can and when they approved the mortgage loan, they did so based upon both of your salaries, credit history, etc. The only way you can be removed from the Note is if the Note is satisfied in full by it being paid off. Your ex will need to refinance the loan in order to remove you. In this way the lender can assure itself your ex is credit-worthy and financially sound enough to support the mortgage herself.

Also, until your ex refinances to remove you from this mortgage loan, this debt will count against you in your ratios when financing a new home.

You might want to check to see if your state recognizes quit claim deeds as some states do and some don't. As an example California recognizes quit claims while Texas requires another type of deed.

All of the above information holds true whether you purchased the house as hetero spouses, gay couple or friends purchasing together.

Mortgage banking was my career for 24 years before I became disabled.

[Misunderestimator]

27. I could tell reading your post that you must be in the mortgage business

I am aware of the deed vs. mortgage, and am definitely not going to take any chances of remaining liable for either.

On the mortgage side, I hear that you have to refinance from some, but from others that you don't. Perhaps that policy is different from bank to bank?

In any case, I'm less concerned about her having to refinance than I am about any tax effect on me receiving the money. (I know that sounds self-centered, but believe me... she's getting out of this very easily for what happened between us.)

I just spoke with her and we're going to call a real estate/tax attorney her father uses, and do it the right way. He's had joint properties in business and has gone through this, so it seems like a place to start. (And don't anyone tell me not to use her father's attorney... I DO trust her and him at least in this regard.)

[bratcatinok]

29. Sorry if I sounded "strange"

:) I try to explain in semi-layman's terms how the lender thinks.

On the mortgage side, I hear that you have to refinance from some, but from others that you don't. Perhaps that policy is different from bank to bank?

Normally the policy isn't going to be different from bank to bank because the majority of lenders sell their loans into FNMA/Freddie/GNMA pools and these entities define credit policy. If the lender warehoused the loan (not many do this anymore because of Community Reinvestment Act issues), the lender might be willing to remove someone from responsibility of repayment of the Note.

What can happen is many spouses may sign onto the mortgage in order to protect their interest in the property but may not be used in the qualifying so they aren't on the Note.

Sounds as if you have a good plan since a real estate/tax attorney should be able to address all of your issues.

[Robb]

30. As I'm newly divorced, here's what I know:

1) Talk to a lawyer. :)

My state considers debt and equity to both be marital property that must be divided equally in 90 percent of cases; any funds that were co-mingled in any way are also marital property.

That means no matter who put what into the house at the beginning, the funds involved were co-mingled to create a marital asset (the house).

As far as refinancing, virtually all mortgages are non-assumable, mine included. That meant that it did have to be re-financed, which of course sucks. But that's the state of things. The title, as said above, is an easy quit-claim deed you file with the county. But the mortgage has to be re-done completely.

Most states do not consider any division of marital assets a form of income. Again, see (1).

Most of all, good luck. :thumbsup:

[greatauntoftriplets]

31. I have a friend whose divorce became final 2 days before the ex died.

She had moved out a couple years ago, he was paying the mortgage. Signed a quit claim deeding his half of the house to his daughters, who made things difficult for my friend (even in terms of her getting into the house to take out some of her belongings) until she got a good lawyer.

My friend moved out because the husband was two-timing her.... Strictly beside the point that he recently died of cancer.

Thanks to her lawyer's intervention, her ownership of half of the house has now been established. She has made an offer to purchase the daughters' half. I am still waiting to hear.

My advice: Contact a good property attorney.

[Misunderestimator]

32. Thanks... I'm definitely getting an attorney.

Sounds like a mess your friend had to deal with. The "two-timing thing" is the same cause here (and many, many other reasons for not working past that) for my leaving...

I hope things work out for your friend.

[greatauntoftriplets]

34. I hope things work out for you as well....

And good luck for the future. ;)

[LWolf]

33. I'm twice divorced, so here goes:

I didn't learn anything to pass along after the first divorce. After 10 years of marriage, we owned nothing.

The second divorce, 3 1/2 years ago, was a little different. I can't tell you about the equity part. When my best friend and partner told me , out of the blue, that he "loved someone else," and "didn't love me that way anymore," I was gone in 10 days and never went back. I wrote the property settlement, had it notorized, and took it to a lawyer, who did the rest. I used half the savings to fund the move and the down payment and closing costs (a whopping $2500) to purchase the shabby little cottage zoned industrial that I now live in, and closed escrow in 10 days. I took no equity. I took the paid-off vehicle, half the furniture and dishes, all my books and my computer, my horses, and the 2 1/2 acres (with payment) that we'd recently bought to build on. I left him all debts, (a 1st and 2nd trust deed and a couple of credit cards), and took none of the equity. The debts did not equal the equity.

He had to sign a quit claim deed for the 2 1/2 acres to put it in my name only. About 2 years later, I looked into refinancing my house and found out that my credit, while good because I paid everything on time, was way overextended; all of the joint credit cards and mortgages still showed up. Luckily, he was paying everything on time. I called him and told him the problem; he refinanced and paid off everything in my name, and opened new accounts in his own name. End of story.

You need to close joint accounts, including mortgages.

[SarahB]

36. What we will likely do...

He really wants the house and I don't really care so he'll probably refinance in his name only to include half the equity in his new mortgage paying me that half as one big settlement (plan on having joint custody and I'm fine to forgo any alimony). We thought about selling and we would split the profits, but probably unlikely as it would be hard for him to put 20% down on an equivalent home with his individual share of the equity (I wouldn't buy anything for at least 3 years myself) and it would cost him more in this higher priced market. It's more financially feasible to refinance. We have owned our home for 9 years and the original mortgage was solely based on his income alone anyway, so thankfully there is some reasonably significant equity and some space to work with here.