Divorcing in an Expensive Housing Market

Stacy D. Phillips

One of the economic aftershocks that stubbornly remains more than two years after the COVID-19 pandemic began is the simultaneous spike in residential real estate prices and rents, and the plummeting inventory of available housing. In fact, between March 2020 and February 2022, the Los Angeles-Long Beach-Anaheim metropolitan area’s median single-family home value spiked 31.4 percent to $936,546, according to Zillow.com’s median home value and market rent reports.

Whether the immediate causes of the expensive market for single-family homes are snarled supply chains, historically low interest rates, or a higher demand for larger houses with more space for an office as a by-product of more flexible remote work arrangements, the market has had a significant impact on clients in the divorces we handle. In some instances, I have witnessed house sellers receiving between 30 and 40 bids during their first (and only) weekend on the market, while in other cases I have engaged in heated court battles over how high or (how low!) to price houses in this difficult-to-gauge market.

A Balancing Act

During divorce, there is an expectation that both sides will work to maximize the timing and price of any assets that are being sold, especially a family residence. However, there is always the need to balance this expectation with the need for housing, which is also more expensive and now, certainly in California, the inventory is very low. So one sells, but then where/how does one buy? It is a strategic domino.

It can be tempting to start the process of selling a house at the beginning of a divorce, but it is hard to find a new house until one knows what he or she can afford with how much money they end up with at the end of a divorce. This lack of stability puts pressure on both spouses to settle sooner, but especially the one who has fewer financial resources or does not know what money will be there in the future to buy a house and maintain one’s day-to-day living. There are a lot of difficult choices being made amid balancing acts.

Mortgage Issues

A particular difficulty some of my clients ran into in the years after the 2008–09 mortgage crisis was obtaining mortgage loans during their divorce, especially when attempting to refinance or secure a home equity loan while the spouse’s name is still on the deed. In the old days, both parties could still be on the loan and the out spouse (the one who did not keep the home) could still get financing when he/she bought a new home, or the parties would refinance in order to get an ex’s name off the mortgage. Today, mortgage companies often refuse to issue a loan for a new home if one’s name is still on a prior house that was transferred to the former spouse. Refinancing the old house’s mortgage is a common method to have a name removed from a mortgage, but as interest rates rise, this is becoming less desirable. Further, another current byproduct of divorce is that a spouse may no longer be able to qualify for a mortgage on his/her own so a refi is not possible.

Stability for Children

Children are the most impacted by a change in housing due to divorce. Parents should prioritize helping them adjust to a potential housing change by maintaining as much stability as possible. An increasingly common solution (that I do not recommend undertaking for longer than a year) is for the parents to keep the family home as a “nest” while they take turns at their own temporary places. Then, if selling the family residence, focus on cooperating to maximize the sales price. After the family residence is sold, each parent can then turn their focus on buying a new place while knowing what the sales proceeds are.

Tips to Maintain Control

Many of these real estate issues that are now at the forefront of divorces were not issues years ago. To best control your housing situation in an expensive market for buyers, I strongly suggest adding a good real estate agent to your team, and doing so early in the divorce process, so you can plan ahead for both maximizing the timing and price for the family residence and to assist with finding a new home post-divorce. In most cases, the best tip is to avoid unnecessary emotional, and expensive, fights with your ex so you can both resolve your case quicker and achieve stability and certainty for yourself. Then again, that is often easy to say, and difficult to achieve.