Divorce and the Marital Home in New Jersey
Divorcing couples have three basic options to equitably distribute the family home: the easiest is to sell the home and split the proceeds.
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Here are common questions divorcing couple run into with regards to the marital home.
1. What are my options with the house?
2. Is the house marital property?
3. Should I move out during the divorce?
4. Is my down payment marital property?
5. Is a house I bought while single marital property?
6. Can I sell the house during the divorce?
7. If my spouse get's the house, am I off the mortgage automatically?
8. Are there tax consequences if I sell to my spouse?
9. Where can I get more information?
New Jersey is an "equitable distribution" state, which means courts will divide "marital property" equitably (fairly), but not necessarily equally. Marital property can sometimes be difficult to identify, but it generally includes all property acquired by either spouse during the marriage, except for property acquired by gift or inheritance.
For detailed information on equitable distribution of marital property in New Jersey, see Equitable Distribution in New Jersey, by Susan Bishop.
Upon a divorce, there are three ways to equitably (fairly) distribute the family home.
1. Sell the House. The easiest option is to sell the home and divide the proceeds. Sometimes this is really the only option because neither spouse can afford to buy out the other, and keep up with the expense of keeping the home after divorce. The proceeds can be divided equally, or in unequal shares to compensate one spouse for giving up another asset.
2. Arrange a Buyout. The second option is for one spouse to buy out the other spouse’s equity. Usually, the buying spouse will arrange to refinance the loan; at the closing, the selling spouse will receive the agreed-upon share of the equity, and the mortgage loan will be in the buying spouse’s name alone. The refinancing does have costs, including title costs, a new survey, recording fees, and attorney’s fees. The spouses will have to decide who will bear these costs as part of the divorce settlement.
3. Continue to Co-Own the House. The third option is to maintain the status quo and continue to own the house together, with no sale or refinance. This option is most common when children are high-school age and it would benefit them to remain in the home and in their current school for a few more years. Therefore, many divorcing couples agree to keep the marital home until the children graduate from high school. Generally, one spouse will move out, and wait for a period of years before the house is sold. However, it can be challenging for divorced spouses to cooperate in keeping a family home operating and fully paid for. Also, it can make it difficult for the spouse who moves out to afford another home, because the loan on the family home is still part of the credit record.
Generally, if a home was acquired during the marriage then it is "marital property" and subject to equitable distribution by a court. If a spouse owned the house home prior to the marriage and didn’t put the other spouse on title or otherwise mix up the ownership with jointly owned property, then it remains separate property and it is not subject to equitable distribution. Spouses generally get to keep their separate property after divorce.
Whether you should move out of the house when you’re planning a divorce depends on your particular family situation. If it’s no longer comfortable for you to live with your spouse, then there’s generally no harm in moving out—New Jersey is a “no-fault” state and there’s no issue of “desertion” or "abandonment" when one spouse moves out.
If both parties own the house, the family court will not order one spouse to leave the marital home unless there is a history of domestic violence.
4. I paid the entire down payment on our family home with money I earned prior to marriage. Can I get my money back?
When one spouse contributes money toward the purchase of the marital home, and places title to the home in both spouses’ names, the contribution of that money is considered a gift unless there is prenuptial agreement that says otherwise. Once the home becomes the marital home, all of the equity becomes marital property regardless of where the funds for purchase came from.
5. I owned my home prior to marriage and placed my wife on the deed after we got married. Is the home a joint asset?
When one spouse owns a home prior to the marriage and then transfers an interest in the house to the other spouse during marriage, the transfer is considered to be a gift, and the property is transformed into a marital asset subject to equitable distribution. Even though this is the law, it does not necessarily follow that the equity in the home will be equally divided between the spouses at divorce. If the marriage was relatively brief, the spouse who owned the home before the marriage will likely receive a credit for contributing the valuable property. However, the longer the duration of the marriage, then it is less likely that the spouse who owned the home before the marriage will receive any contribution credit.
6. The mortgage payments are ruining me. Will the court let me sell the marital home before the divorce is final?
The general rule governing a request to sell the marital home before the divorce is final is explained in a court case from 1978: Grange v. Grange, 160 N.J. Super. 153 (App. Div. 1978). Basically, the Grange case stands for the principle that courts generally won’t approve a request for sale while the divorce is still pending, unless the home is in foreclosure or will soon go into foreclosure, or the family does not have the financial resources to meet the monthly mortgage payments. In those cases, the court may grant a motion to compel the sale of the marital home while the divorce is still pending.
7. My ex-wife received the marital home in our divorce. Am I automatically taken off of the mortgage?
No. In order to be relieved of responsibility for the mortgage on your family home, the loan must be refinanced in your ex-wife’s name alone. The only other way to take your name off the loan is for the mortgage company to agree to it based on your representation that your spouse has bought out your interest, but most mortgage holders won’t agree to this unless there’s a great deal of equity in the house and you complete a lengthy and detailed application.
There are no capital gains and no federal taxes incurred when a spouse transfers his or her share of the marital home to the other spouse as part of a divorce. Internal Revenue Code Section 1041, entitled “Transfers of Property Between Spouses or Incident to Divorce,” provides that where property is transferred from one spouse or a former spouse as part of the divorce, then no gain or loss will be recognized by the transferor spouse. Moreover, the spouse who becomes the sole owner of the marital home takes the same basis in the house as he or she had when the parties owned it.