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July 23, 2020
Does Your Former Family Residence Have Fair Rental Value?

When filing for divorce, you have to distribute the community property between the two spouses fairly. You want to make sure that you’re receiving fair rental value. However, real estate can sometimes be challenging. One spouse buying out the other is one of the easiest ways to do this – unless the spouse staying in the marital home cannot obtain a mortgage. Selling the house and then splitting the equity after deducting closing and other costs is also a viable option as long as the real estate market is in good shape. 

In some cases, neither option is viable. The spouse retaining the home might not obtain a mortgage, the house could have negative equity, or the market might not be suitable to sell. You might think you’re in a bind, but there is another option. 

Renting to a Third Party 

You can rent the home to a third party. You would both share the costs for renting the home, such as cleaning between tenants and taxes. You would also both recover half of the incoming rent after you pay the mortgage. This is probably not ideal if both parties are not getting along, but with a solid agreement, it can be done. 

Renting to Your Ex-Spouse

The other option is that the party leaving the marital home can rent the house to the spouse staying. Regardless of which way you decide to go, you’ll need to determine the home’s fair rental value. 

Why Should a Spouse Have to Pay Rent?

If you are the spouse staying in the home, you are getting 100 percent of the enjoyment of the house while you are both responsible for the mortgage. The spouse that leaves receives no benefit from the home, including claiming any tax deductions, but is still responsible for half of the mortgage payment. However, if one spouse decides to stay in the house and takes on the entire mortgage payment, the inequity is offset. 

However, if you are staying in the house and are offsetting what you owe the other spouse with the equity in the home, you are creating a situation where the home is not financially stable. When you use the equity in the house, you make it more challenging to get a mortgage. You could even use so much that you have no equity left. 

Instead of using the equity, paying fair rental value means that you pay your debt immediately instead of letting it languish and use up the equity in the house. 

Finding Fair Rental Value 

As with finding the fair market value of the marital home, you can use a real estate appraiser to determine the fair rental value. The appraiser will look for comparables in your area to select a reasonable monthly rental for the home. 

The person staying in the house is paying fair rental value, and the other spouse is paying the mortgage. The other spouse uses the rent to pay the mortgage, taxes, and other expenses related to the home, just as if she would if you rented the house to a third party. 

If you are ready to file for divorce or your spouse served you with divorce papers, contact Hartley Lamas et al. for a consultation.

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