Mountain Law: What Colorado law says about disposing of the marital home in divorce
October 7, 2014
Many divorce cases involve the question of what to do with the marital home. This issue has emotional as well as economic significance. It can be useful to consider the issue in three parts: 1) short-term plan; 2) long-term plan; and (3) equity and debt plan.
Each of these parts is discussed below.
The short-term plan starts with deciding who will live in the home before the divorce is finalized. In some cases, the spouses will continue living in the home together despite the divorce proceedings. In other cases, one spouse will agree to move out. In still other cases, the spouses will disagree about how to handle the home during this phase and the court will resolve the issue. Unless there is agreement or a court order, both spouses generally have the right to continue living in the home.
Once the divorce is finalized, the short-term plan is often based on a desire that any children be able to continue residing in the home with one of the spouses for a period of time. The right to live in the home is a separate consideration from ownership of the home, the obligation to pay expenses or debt, and the right to receive a share of the equity upon sale or refinance.
Once the divorce is finalized, the short-term plan is often based on a desire that the children be able to continue residing in the home with one of the spouses for a period of time.
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The long-term plan is what the parties intend to do with the home after any short-term plan is complete. Does one spouse intend to continue living in the home? Do the spouses intend to sell the home? Do the parties want to rent the home for income? Is there some other arrangement that makes sense? It is possible for the entire plan to be that one spouse will receive title to the home along with all its rights and obligations. But often the spouses agree to split the rights and obligations.
That brings us to a consideration of the plan for equity and debt. A common arrangement is that one spouse will live in the home for a period of time under a short-term plan while the other spouse contributes to paying the mortgage. The parties then agree to sell the home with any equity to be split in a certain way. The split will likely account for payments made by each spouse before the sale for items such as maintenance, repair, improvements and the mortgage. One approach is to indicate categories of items that will entitle either party to a credit or debit in the final adjustment. This method eliminates the need to determine the present market value of the home, which may turn out to be inaccurate. Another approach is to allocate to one spouse a particular dollar amount to be paid from the sale of the home. This alternate method does not allow the spouse receiving the payment to participate in any appreciation of the home. When this alternate method is used, it is not uncommon for one spouse to deed the property to the other and carry back a note and deed of trust securing the payment obligation.
Divorce arrangements between the parties do not affect creditors' rights. Thus, if there is a mortgage encumbering the property for which both spouses are responsible, the lender will retain full collection rights against both spouses even if the divorce agreement requires one of the spouses to be responsible for the debt. It can be problematic if a former spouse was required to refinance a mortgage and did not do so or if a former spouse files bankruptcy.
Disposing of the marital home requires careful consideration of the short-term plan, long-term plan and plan for debt and equity. There are many potential complications and pitfalls that should be addressed with a knowledgeable attorney and detailed in the divorce agreement.
Noah Klug is owner of The Klug Law Firm, LLC, in Summit County, Colorado. He may be reached at (970) 468-4953 or Noah@TheKlugLawFirm.com.
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