The Marital Home in Prenups, Postnups, and Divorce
Is a marital home, by definition, marital property?
Yes. In the absence of a written, properly executed agreement to the contrary, then yes, a marital home — the primary residence of the spouses — is indeed considered marital property and thus subject to equitable distribution in divorce. Regardless of whose name is on the deed and mortgage, a marital residence is considered marital. Regardless of who made the mortgage payments, paid property taxes, and homeowners’ insurance, kept utility bills current, cleared out the garage, and installed new kitchen cabinets by hand. Usually, but not necessarily, the equity in a marital home is equally divided between the spouses.
How is equity calculated?
The equity is simply determined by establishing a value of the property (by an appraisal, and in some cases, informally by CMA*), less the outstanding mortgage(s) owed on the home. For the sake of simplicity: if a divorcing couple has a home valued at $500,000, with an outstanding mortgage of $300,000, the equity in the home is $200,000. Each party would likely be entitled to 50%, or $100,000 (less costs related to the sale, such as realtor fees, transfer taxes, etc, which would generally be apportioned to the spouses equally).
What if one spouse remains in the house?
Often one party wishes to stay in the home. When this is a feasible, agreed-upon option, the remaining party will “buy out” the interest of the moving-out party. In our example, the party staying would pay the moving party $100,000. As there will be no realtor fees or costs associated with a sale to a third party, those costs are typically not considered, however, given the particular circumstances of the family, they could be contemplated and acknowledged in the buy-out amount.
What if the remaining party can not write a check for $100,000? As is often the case, the “buy-out” is realized in exchange for other assets. For example, there might be $400,000 in a savings account, of which each party would be entitled to $200,000. The “buy-out” might be accomplished by the moving party retaining $300,000 of that account — the additional $100,000 from the spouse’s portion constituting the “buy-out.”
Can a prenuptial limit either spouse’s rights to the marital home?
Yes. By agreement, the parties can elect to treat the marital home as separate property. Why? Because the property may have been owned by one spouse prior to the marriage, owned by a Family Trust for the benefit of one spouse, or be a home intended to be lived in by the spouses but remain part of a separate non-marital estate or trust. When parties, or their families, want to protect the property in the event of divorce, there is a preference to hold the home as separate property.
What about in a postnuptial?
A postnuptial agreement faces complications when it comes to marital homes. A married couple, by operation of law, owns a home as tenants in the entirety, meaning each party owns an equal portion of the home and neither party can transfer her portion independently. This makes sense, as anything shy of this would result in neither spouse having meaningful control of their own living situation. Imagine your spouse selling his half of the home to a stranger, a stranger who then proceeds to move in and reside alongside you. Untenable! When it comes to the home, the married couple is treated as one entity under the law. In the event of the death of either party, the surviving spouse becomes the sole owner of the whole property.
Unlike a prenuptial where parties have not yet gained rights pursuant to marriage, a postnuptial seeks to modify the rights of individuals already imbued with certain rights, including ownership rights, pursuant to their marriage. In order to modify ownership of real property, a postnuptial alone is insufficient.
To change property ownership, the deed must be transferred according to the parties' wishes. For example, if the parties agree that the home should be put in one party’s name, the deed must be transferred from tenants in the entirety to joint tenants in common, with or without rights of survivorship. Perhaps one party wishes to remain in the property for his lifetime, should he outlive his spouse, but has no heir to whom to leave the property. He may agree to transfer his name off the deed provided he retains a lifetime estate in the property, with the home reverting to an heir of his spouse’s choosing upon death. Not only does this need to be addressed in the deed, but in the parties’ respective Wills.
When different areas of law intercept, as we see here, with requirements of matrimonial property, and trusts and estates law, it is important to have all necessary legal documents aligned so that the parties' wishes can be consistently reflected wherever required. Contradictory documents can result not only in confusion but litigation.
To summarize, if a postnuptial agreement includes modifications of the spouses’ ownership of real property, deeds should be modified to reflect those changes.
*Comparative Market Analysis (CMA) is performed by a realtor in anticipation of sale. A CMA provides a recommended listing price for the house and provides an estimate of what the house would likely sell for in the current market. A CMA bases its prediction on recent sales of comparable properties in the neighborhood and surrounding area.
RACHEL ALEXANDER
Alexander Mediation Group