do you use value of home at separation or at divorce?

[thatguyab]

I think this is a fairly common question but haven't found the exact situation to compare it to.

If one spouse leaves the family home and the one staying takes over payment of the mortgage and associated bills (utilities). If we agree that the one leaving will not get an "equalization payment" until one year has passed. Should the one leaving be entitled to half the equity in one year or the equity at time of legal separation?

If it is calculated as the value after one year we would of course take into consideration money contributed by the staying spouse for mortgage payments and general upkeep to maintain the same state of repair.

The amount regardless would have to take into consideration outstanding debt at time of seperation (being carried by the one leaving) but should interest on that debt be taken into consideration because there will not be an equalization payment for one year.

Thankyou in advance for your time and consideration.

[billm]

It sounds like you did not financially separate until one year after physical separation.

So I would treat the financial separation date as the date after one year, which means that you split all assets then.

If you take into consideration the mortgage, taxes, upkeep paid, then you must also take into account that you did not pay 'rent' to the leaving spouse whose house you lived in (half ownership anyway).

Let say you pay for taxes/mortgage/upkeep $2000/month. So you should each pay $1000/month for that. But since you are also living in the house and lets also say that you would be able to rent the houe for $2000/month. Then you owe the leaving spouse $1000/month for renting their half of the house - so in this example it is a wash and you simply split the house - mortgage equity 50/50 after the first year.

Utilities should be paid 100% by the person living in the house.

None of this factors in spousal support or child support - that is a separate issue and should be kept that way. That should have been paid since the time of physical separation.

[thatguyab]

Thanks for the reply bill,

If I may clarify on the situation a little more so that you could give your opinion and thoughts on it.

We are in the very beginning of separation. The discussion that is taking place is who will be staying in "the house". She does not want to leave as it would be harder on her and, more importantly, the kids. I am O.K. with her staying as I want to cause as little disruption to the kids as possible.

What she has proposed is that she take over any and all payments related to the house effective probably September 1st. She is in a position that she would not be able to give me half of the equity in the house immediately. She would like to wait to pay out my share until the divorce is final which could be, for discussion sake, September 1, 2010. She feels that because she will be the one to stay and take care of the payments then she should only have to split the equity based on the homes value this year. I'm under the opinion that from September 1, 2009 that the home and property could be looked at as an investment as I've got funds tied up in it that I can not access until maturity (September 1, 2010)

Thank you for your input and advice. I look forward to reading your response.

[billm]

I have the same response - it is both of your houses until one or both of you receives the equity in it.

So if she can't buy you out now, then it is half your house until she does. Treat it as an investment for both of you, where you continue to split the cost equally (mortgage/taxes/upkeep), and treat her as a tenant that pays rent (to the both of you) and all the utilities. If you are paying appropriate SS (if any) and CS, which is a separate issue, then that is the most fair way to go about it.

Paying the mortgage does not qualify her as able to keep the increase in value a year from now - both your names are on the title and the mortgage and that is where the risk is and that is where the increase in value comes from.

So get someone qualified to set the rent, then change over the utilities to her name. Both of you pay for half the mortgage and taxes and upkeep (like a land lord), and she pays you 1/2 the rent (and herself the other half). You don't need to set the value of the house until you sell it or she actually buys it from you.

Also you pay SS (if warrented) and CS when you move out.

She can't afford to buy you out now, so that is the only option. She can't have her cake and eat it too - aka "I'll buy you out in a year, but based on its value now, all while I live in the house"

Also, get all this in writing and I would word it that you both remain owners of the house, and she will pay you 1/2 the rent and all the utilities. Also the rent goes up each year by the allowed amount (table driven by the Land and Tennant Act - or whatever it is called), though it should also be clear about what happens in one year - that she buys you out based on a professional appraisor value (not a realtor), or the house is put up for sale and any reasonable offer must be accepted by both.

Don't leave the house until you have it all in writing. Use one lawyer to finalize the deal, then each get proof that you received independent legal advice.

Also, if you want your kids 50/50 at some point, start as soon as you leave the house, with it in writing before you do.

Divorce sucks, it is surprising that half of us wanted this.

[HatesCheaters]

Originally Posted by billm

Divorce sucks, it is surprising that half of us wanted this.

Now my new favorite quote. Thanks Bill!

[thatguyab]

Thank you Bill for your advice and thoughts on this situation. You've given me some great information to consider and think about while proceeding with the seperation.

Thanks again for your help!

[today]

I've always felt that if one or the is willing to take over the payments of the matrimonial home and the other wishes to leave then the valuation would be the time of seperation. You would both need to agree of course and have a sep agreement in place prior to moving out. I see nothing wrong with that keeping in mind the home may either increase or decrease in value. Likely increase of course but understanding the person leaving has agreed and understands. If one is not contributing towards the investment so to speak then why should one profit from it.

The logical option is to buy out the home now, what would be the reason for waiting a year, if it is not affordable how will it be in a year.

[billm]

Originally Posted by today

... If one is not contributing towards the investment so to speak then why should one profit from it.....

Covering the mortgage payments while living there is not where the majority of the investment is - the equity and existing mortgage is mostly set, the one year of payments makes no difference.

[today]

OK Bill following your logic and I agree by the way, the one year would likely not make a big difference, why not allow one or the other to stay in the home if that is their wish for what ever reason and cover all payments for that period, fix a value on the home at time of separation. This way the person leaving is not stuck with mortgage payments in addition to his own rent etc. He still has his investment, knows exactly what he will get out of it and may continue to afford to live as well. The other who remains in the home on the other hand by making all payments will be entitled to any increase that may or may not happen until the home is sold. Seems to be win win for each party in these types of situations. It seems very simple to me.

[billm]

Originally Posted by today

OK Bill following your logic and I agree by the way, the one year would likely not make a big difference, why not allow one or the other to stay in the home if that is their wish for what ever reason and cover all payments for that period, fix a value on the home at time of separation. This way the person leaving is not stuck with mortgage payments in addition to his own rent etc. He still has his investment, knows exactly what he will get out of it and may continue to afford to live as well. The other who remains in the home on the other hand by making all payments will be entitled to any increase that may or may not happen until the home is sold. Seems to be win win for each party in these types of situations. It seems very simple to me.

That is one way to go about it, but it is not a fair deal from a business point of view for many reasons, and given this it is not a fair way to structure it.

If your assets are stuck in a home and you are not receiving any benifit, yet have a risk of the other person not actually buying you out at the value agreed, either because they can't or change their mind when the value of house drops. Also, your name is on the mortgage and taxes - you are assuming risk, but get no reward. The other person is living in your half of the home and you receive no benifit. It is simply not a fair way to handle things. People can agree to anything, but I don't see the need in this case. The one living in the house should pay the mortgage and taxes and this can offset the rent they should be paying for the half they don't own. When the asset is disposed of, either with a buy out or a sale, that is when it should be valued.

I stick by my earlier post regarding the concept of renting the house for a truly fair deal.