A divorce divides a family into two separate households, which usually requires at least one spouse to find another residence. If you are considering buying a new home before your divorce is final, carefully evaluate all the potential complications that can arise from acquiring such a significant asset while the divorce case is pending. If you buy a new house before the divorce is final and without taking proper precautions, the court might deem it marital property and divide it accordingly.
Asset Division and Legal Property Agreements
Buying a new house while the divorce is pending could jeopardize your sole ownership of the home. To prevent the house from being considered part of the marital assets, you must prove it is "separate property." Separate property includes assets you owned prior to the marriage, acquired by gift or inheritance during the marriage, or purchased with non-marital money. In a minority of states, all marital assets are considered "community property" and are divided equally. The majority of states use "equitable distribution" to divide marital property. These states consider various factors when determining how to award property fairly, if not necessarily equally. Both types of asset division recognize separate property as long as the spouse making the separate property claim can prove the asset is separate property, for example, by proving it was owned before the marriage took place or purchased with separate funds. To protect your home from being considered a marital asset, consider entering into a legal property agreement, which is signed by both spouses and approved by the court. The agreement should specifically address both spouses' ownership interests, along with equity and title -- stating that the home buyer's spouse will have no rights to the home.
Because the home will be your separate property, you cannot use marital money for the purchase. Mixing marital funds with separate funds is referred to as "commingling" in legal terminology, and it can endanger your separate property. All stages of the sale, including the down payment, must be financed with your own money. You should also avoid using marital funds to pay for any maintenance and upkeep of the home.
Legal Separation and Home Buying
Some couples choose to obtain a legal separation before moving forward with divorce. If you are legally separated and have entered into a property settlement agreement with your spouse, your new home purchase will not be counted as marital property. Be certain that your agreement specifically addresses property and separate assets. Remember, too, that you cannot use marital money to finance or maintain the home.
Before buying the home, consider the state of your finances and whether they are likely to be affected by the divorce process. You might be able to afford the mortgage payments on the new property now, but your income could be reduced if you have to pay child or spousal support. Furthermore, if you buy a new house while the divorce is pending, the court will likely include it as part of your total assets when dividing marital property, which can affect the distribution of marital assets. Because you already own such a significant separate asset, the court might decrease your share of the marital property and award your spouse a larger percentage of the joint assets.
Read More: Financial Gifts in a Divorce
A.M. Hill has been a licensed attorney since 2004. Her practice areas include family law and divorce, probate and estate planning and bankruptcy. Hill holds a Juris Doctor from the Cleveland-Marshall College of Law.