Dividing the Family Home in an Illinois Divorce: Key Considerations for High-Net-Worth Couples

For many couples, the marital home is the most valuable asset they acquire during their marriage.   Besides its financial worth, the home often holds significant emotional value as the place where you raise your family and make memories.  Deciding what to do with the family home during a divorce presents one of the most challenging aspects.  Couples need to carefully assess their post-divorce financial situations and understand all available options and their potential consequences.  In this blog, we will explore key considerations for high-net-worth couples when dividing the family home in an Illinois divorce.

Who Owns the Family House?

When deciding what to do with the marital home, both spouses must clearly understand their rights to the home and its equity.

For a home to be considered “marital”, and subject to division of equity, the home must have been:

1. Purchased and titled jointly during the marriage; or
2. Retitled into both parties’ names after the marriage.

Pre-Marriage Ownership

Spouses must understand that marriage does not automatically convert a pre-marriage home into marital property.  People often believe that once they are married, and live together in the home, that they are entitled to equity or ownership in the home.  That is not correct.  If the home was purchased before the marriage, the couple must take the affirmative step to re-title the home into both parties’ names to convert it to marital property.  The act of living in the home together, and contributing to the mortgage and upkeep, does not in and of itself make the home marital.

In those situations, the spouse who does not own the home is likely only entitled to reimbursement for any upgrades that they contributed to during the marriage.  Any money dedicated to the mortgage, utilities, and repairs will be deemed as having already been compensated for through their enjoyment of the home.  In addition to not being entitled to any of the home’s equity, they will have no claim to remaining in the home after the divorce.

Jointly Purchased Homes

Alternately, it is important for individuals to know that if the home was purchased during the marriage and is jointly titled, they do not need to be listed on the mortgage to be a co-owner. Couples often take out a mortgage in only one party’s name for various reasons, most often because one spouse has a much higher income (or the only income), better credit, fewer debts, etc.  The way the property is mortgaged does not determine ownership, it’s about how the property is titled.

High-Asset Families

For many high-asset families who may own valuable houses with considerable equity, may have inherited property from family, or may own multiple properties, identify how the property is owned. Understanding whether you hold the property jointly or individually is a pre-requisite to determining your rights regarding ownership of the property and the equity involved.

What Is the Marital Home Worth?

It is not uncommon for couples to have a difficult time agreeing on the value of the marital home during a divorce.  This could be related to common misunderstandings about the real estate market and current home values.  It could also be tied to sentimental attachments or a misconception as to what one party’s efforts through upgrades or additions to the home have added to its value.  In general, the party who wants to keep the house tends to lower its value (which lowers the equity payout), while the party who wants to sell or proceed with a buyout may be prone to overvaluing the home.

To resolve this kind of debate, and ascertain the true value of the home, obtain a professional appraisal to confirm its value in the current real estate market.  Your attorney will recommend a trusted appraiser to help determine your home’s value.  This assessment is key for the couple to decide whether to keep or sell the home during the divorce process.

Related Article: Can I Buy a House During Divorce?

How Do You Split the House in a Divorce?

When deciding what to do with the marital house, it is critical to know what options are available and what those options involve.  Those options are generally for one person to “buy out” the other person’s share of the home, i.e., their portion of the equity that has accrued during the marriage. The other option is to the sell home and split the proceeds.

While it is technically possible for two people to continue to own property together after a divorce, it is generally not advisable because of the liability involved in continuing to share a financial obligation with an ex.  Essentially all divorces will ultimately allocate the house to one spouse, or facilitate for its sale, as part of the dissolution of the marriage and the marital estate.

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What Is Involved in the Sale of the Family Home?

When a house is sold as part of the divorce process, it is usually listed and sold by agreement of the parties while the proceedings are ongoing.  In general, parties who opt to sell the home as part of the divorce do so either because neither wants the house or because neither can afford it on their own.  For many couples, especially high-net-worth couples, an expensive home is only affordable if there are two incomes contributing to the mortgage.   Alternately, some couples find that they no longer want, or need, a large home with all the expenses and overhead that come with it.  Being able to sell the home as part of the divorce can be a convenient way to downsize, and cut down on costs, in anticipation of post-divorce life.

During the sale, at least one party will generally continue to reside in the home.  The person who stays in the home is responsible for keeping it in clean, showable condition until the home has sold.  Both parties are expected to cooperate and work together during the process and facilitate the sale.  If they cannot, a judge may intervene to set parameters and expectations for the sale to protect the value of the marital estate.

What Are the Pros and Cons of Selling the Family Home?

Pros

• Neither party maintains financial obligation or liability for the house.
• Both parties leave the marriage with an influx of cash. Presuming the property is not underwater and they have owned it long enough for equity to accrue.
• If the parties have children, one party retains the family home for the kids.
• Nobody “wins” the house.
• Both parties get a fresh start in a new home.

Cons

• Paying for closing costs, realtor fees, and repairs significantly reduces profits.
• If the parties have children, the kids have to experience two moves.
• Selling can be a long process.
• Parties can experience additional conflict around sale-related issues (choosing a selling price, accepting an offer, etc.).
• Having to move.

What Is a Buyout of the Family Home?

In a buyout, the parties generally agree that the spouse who wants to keep the home will pay the other spouse their portion of the equity accrued in the home during the marriage.  You make this payment directly and the percentage is generally based on the parties’ respective incomes.

The buyout could be via a cash payment, through the division of the parties’ marital retirement accounts, or through cash received via a refinance of the mortgage.  The advantage to a buy out is that it will save both parties the cost of selling the home.  This includes realtor fees, closing costs, as well as repairs to the home needed to facilitate the home.  The more valuable the property, the more the parties will pay out in these kinds of fees and costs.  So, for high-net-worth couples, being able to avoid these kinds of expenses can be a significant savings to them.

The next step in a buyout is removing the spouse’s name from the mortgage and the title of the home. This is generally achieved through a refinancing or assumption of the home loan into the name of the individual who is keeping the house.  The removal of the spouse’s name is a necessary step, both to protect the individual who is giving up the house from further liability.  It is also necessary to ensure that all equity accrued after the marriage belongs exclusively to the spouse keeping the home.  Interest rates can impact the feasibility of a buyout for many couples, as some may be reluctant to lose their favorable rates through refinancing.  In such situations, it is important to talk to your lender about all your options to ensure that a buyout is something you will qualify for and can afford once you are a single-income home.

What Are the Pros and Cons of a Buyout of the Family Home?

Most divorces involve a buyout, as opposed to a sale.  The reason is usually a combination of finances and emotions, especially if the parties have children.  Often, there is a strong sentimental attachment to the home, and a desire to reduce the amount of change (and number of moves) for kids, if applicable. For many families, a buyout of the home promotes greater emotional stability through continuity for the children and one of the parties.  However, it also important to note that those who can buyout a spouse will also save themselves money by not having to pay closing costs, realtor fees, repairs, and other expenses associated with the sale of a property.

For high-net-worth families, this is especially important—and beneficial—as closing costs and realtor fees are calculated using percentages of the sale price.  So, the higher the value of the home, the more you will have to pay in fees and costs as part of the process.  Facilitating a buyout allows you to save that money, as well as your home.

Additionally, in a market of high interest rates, many homeowners are anxious to keep their home to avoid having to purchase a new home at a much higher interest rate, which will dramatically increase the cost of the home over time.  Finally, the party who keeps the home will receive all the equity at the time of the sale, which can be another strong financial incentive for keeping a valuable home with a good interest rate.

Takeaways

Dividing the family home in a high-net-worth divorce involves complex financial and emotional considerations.  Understanding your rights, the value of the home, and the available options—whether selling the home or facilitating a buyout—is crucial for making informed decisions that best suit your future.  Consulting with an experienced family law attorney can provide the guidance needed to navigate these challenges effectively.

If you need assistance with your divorce and the division of your marital home, contact the experienced attorneys at Anderson Boback & Marshall.  Our team specializes in high-asset divorces and can help you make the best decisions for your financial future and family well-being.  Schedule a consultation today to learn more about your options and how we can assist you.