Who Gets the Marital Residence in a Divorce?

Dividing assets during a divorce is often one of the most contentious and emotionally charged parts of the process. Among these assets, the marital residence, the home shared by the couple, holds significant financial and emotional value. For many couples, determining who keeps the home, or what happens to it, is a central concern. This guide provides an in-depth look at the key considerations for determining the fate of the house during a divorce. With high interest rates and other economic challenges influencing these decisions, this guide also provides examples to explain the variety of outcomes and considerations involved.

Factors Courts Consider in Awarding the Marital Residence

In Illinois, the marital residence is typically considered marital property if it was purchased during the marriage. This means that its division is subject to equitable distribution, where the court divides property based on fairness, not necessarily equality. Key factors influencing the court’s decision include:

1. Financial Circumstances of Each Spouse:

• The court will assess each spouse's income, earning capacity, and ability to afford the home’s mortgage, taxes, and maintenance. With rising interest rates and inflation in Illinois, these factors have become more pressing. Higher mortgage payments and increased costs of living may make it difficult for one spouse to manage the home alone. For instance, if one spouse has a steady job with a high income while the other is transitioning back into the workforce after years as a stay-at-home parent, the court may be inclined to award the home to the higher-earning spouse.

2. Custodial Arrangements for Children:

• Stability for children is a priority in family law cases. If one spouse has primary custody of the children, the court often aims to keep the children in the marital home to minimize disruption. For example, a spouse with primary custody might be awarded the home if it allows the children to remain in their current school district. However, if the home’s costs exceed their means, the court might encourage selling the home and using the proceeds to purchase a more affordable residence.

3. Emotional Attachments and Practicality:

• While emotional ties to the marital residence are understandable, courts prioritize practicality. For example, if both spouses express a desire to keep the home but neither can afford the mortgage on their own, the court may decide that selling the property is the best course of action. Rising costs of repairs and upkeep, especially for older homes, are also factored in. This often occurs when one spouse’s emotional ties to the property outweigh their ability to manage its financial demands.

4. Other Assets:

• The marital home’s value is considered alongside other assets, such as retirement accounts, vehicles, and savings. For example, a spouse might agree to relinquish their claim on the home in exchange for a larger share of a retirement account or investment portfolio. This trade-off might be advantageous for a spouse looking to prioritize long-term financial stability over immediate housing concerns.

What If the Home Was Purchased Before the Marriage?

When one spouse purchased the home before the marriage, determining whether it qualifies as a marital asset becomes more complex. Generally, a home purchased before the marriage is considered non-marital property. However, several factors could convert it into a marital asset or give the other spouse a claim to a portion of its value:

1. Commingling of Funds:

• If marital funds (e.g., joint income or savings) were used to pay the mortgage, property taxes, or significant renovations, the home may be deemed partially marital property. If a spouse purchased a home five years before marriage but used joint earnings during the marriage to build an extension, the increased value due to the extension could be subject to equitable division.

2. Title Changes:

• If the title of the home was changed to include both spouses’ names, this can transform the property into a marital asset. In some marriages, a spouse will add the other’s name to the deed after marriage. In that case, the court may consider the home marital property regardless of when it was purchased.

3. Contributions to the Home:

• Non-financial contributions, such as one spouse’s labor or time spent improving the property, may also factor into the court’s decision. For example, if one spouse spent significant time renovating the home, they might argue for a share of its increased value.

4. Appreciation in Value:

• If the home’s value increased during the marriage due to the efforts of both spouses, that appreciation may be subject to division. In the past few years, property values have risen significantly due to the economic climate and because both spouses had additional income to invest in landscaping and remodeling. In certain cases, the increase might be considered a marital asset.

Options for Handling the Marital Residence

1. One Spouse Keeps the Home:

• If one spouse keeps the home, they will likely need to buy out the other’s equity. For example, in a case where the home’s equity is $500,000, the spouse retaining the home may need to pay $250,000 to the other spouse. This process can be financially complex in today’s economy. Refinancing is often required, and with current high interest rates, this can result in significantly increased monthly payments.

2. Sell the Home and Split the Proceeds:

• Selling the marital home is often the most practical solution, particularly if neither spouse can afford the property independently. For instance, a couple might decide to sell their home and split the $150,000 in proceeds evenly. However, the challenges of Illinois’s current real estate market, where high borrowing costs deter buyers, may result in the home sitting on the market longer than anticipated, delaying the distribution of funds. With the higher interest rates, it also becomes difficult to find a home comparable to the lower interest rates many were able to take advantage of 4 years ago.

3. Delayed Sale:

• Courts sometimes allow a delayed sale of the marital residence, where one spouse (usually the custodial parent) remains in the home temporarily. For example, in a case where a parent has custody of a 16-year-old child, the court might allow them to remain in the home until the child graduates from high school, at which point the home will be sold, and the proceeds split. While this arrangement provides short-term stability, it can prolong financial entanglement and potentially delay both parties’ ability to achieve financial independence.

What Happens to the Mortgage and Interest Rate?

1. Refinancing the Mortgage:

• Refinancing to remove one spouse from the mortgage is a common requirement. If it is decided that one spouse retains the home, they most likely will need to refinance to remove their ex’s name from the loan. However, with interest rates currently at their highest levels in decades, refinancing can lead to significantly higher payments. For example, a $250,000 loan refinanced from 3% to 7% interest increased monthly payments by over $1,000.

2. Interest Rate Considerations:

• Many couples secured mortgages during a period of historically low rates. For example, a couple who locked in a 2.8% rate in 2020 may face significant financial challenges if refinancing now at 7% rate. This scenario can make keeping the home unaffordable for either party, especially if other debts or obligations exist.

3. Joint Liability Until Refinancing:

• Until refinancing is completed, both spouses remain liable for the mortgage. If a separated couple agrees that one spouse will retain the home but refinancing takes months, any missed payments during this period could damage both parties’ credit scores, further complicating their financial situations.

Emotional and Financial Implications

The marital residence often represents more than just a financial asset; it is a place of memories and comfort. However, the decision to keep or sell the home should be guided by practical considerations, such as:

• Affordability: Can one spouse realistically manage the mortgage, taxes, and upkeep alone, given rising costs in Illinois? A working professional with a secure job might handle the financial burden better than a self-employed individual with a fluctuating income.
• Children’s Stability: Will retaining the home provide the necessary stability for children, or would selling and moving to a more affordable property be a better long-term solution? For example, a family might prioritize staying in the home for the sake of a child with special needs who thrives in their current school environment.
• Future Financial Security: Does selling the home free up capital that can be used to invest in more sustainable housing or other financial priorities? Selling a large home to downsize might provide both parties with financial breathing room and a fresh start.

Consulting with Professionals

Dividing the marital residence requires careful evaluation of legal, financial, and emotional factors. Consulting with a family law attorney is crucial to understanding your rights and options. Additionally, working with a financial advisor or real estate professional can help ensure that decisions about the home are both fair and financially sound. In Illinois, where the economic climate is shifting rapidly, having guidance can make a significant difference in achieving a stable outcome.

While the marital residence often feels like the heart of a home, its division in a divorce must be approached with practicality and fairness. By taking the time to understand these challenges and seeking professional advice, divorcing spouses can make informed decisions that set the foundation for a stable future. If you’re facing questions about the marital residence, don’t hesitate to reach out to our attorneys at O.Long Law, LLC for guidance.