Four Issues That Arise About The House In Divorce

One of the most painful aspects of divorce is considering giving up or selling the family home. It’s no surprise why. Homes usually provide emotional security, a sense of continuity and permanence, and hold treasured memories. Often people fight hard to keep the house in divorce even when their post-divorce budget strongly indicates that it would be wiser to sell.

“Unfortunately, I think one of the biggest mistakes [people make in divorce] is keeping a house they can’t afford,” says Nancy Hetrick, a Certified Divorce Financial Analyst (CDFA). “They don’t really do the research and the planning to make sure they’re going to be able to afford that home.”

Listen to Nancy’s interview on the Divorce Dialogues podcast.

Even if you have the assets to buy out your spouse’s interest in the home at the time of the divorce, keeping a home that you can’t easily afford can have multiple downsides in the long run. For your own future emotional and financial health, it’s vital that you reflect on some of the common issues that arise when you stretch your finances thin to keep the marital home.

  1.     Difficulty keeping up with mortgage payments.

 If you keep the family home after divorce, you’ll almost certainly have to refinance the mortgage so that you can remove your spouse’s name from the deed. This process is costly, and it may result in mortgage payments higher than the one you’re currently paying. You’ll need to determine whether you’ll be able to absorb these costs with your available income and cash flow, and how higher costs might impact your budget and lifestyle.

  1.     Difficulty paying for the upkeep.

 What condition is your house in? Your love for the property might blind you to the problems that often pop up: leaking pipes, heating issues, a patched and damaged roof, recurrent mold. These issues can be extremely costly, even if you can handle the mortgage capably. Even if your house currently doesn’t have any of these problems, you must consider whether you’ll be able to afford to handle any repairs that are likely to eventually arise? Consider that if your home falls into disrepair and you can’t afford to fix the problem, you might have to sell the property at a loss. If the damage to the property is severe, it may even be unsellable until repairs are made.

  1.     Having to bear selling costs on your own.

 Before fighting to keep the home, consider how long you intend to stay in it. Might you want to sell it sometime in the next several years? Will you want to continue living in it after your kids grow up and leave? Are you considering moving eventually? If there’s a strong possibility that you will want to (or need to) sell the house in the next several years, you will have to handle the selling costs all on your own, which is expensive. Usually, realtors receive 5 to 6 percent of the purchase price, while attorney fees, taxes, and other costs can take another 2 to 4 percent of the price. In addition, you will have to bear the tax consequences of any capital gains earned on your own. However, if you sell the home as part of the divorce settlement, you and your former spouse would split all those costs.

  1.     Feeling the absence of assets used to purchase your former spouse’s interest.

 You may feel that you can afford the home because you traded your retirement benefits, stocks, or other assets in exchange for your ex’s equity in the house. However, once the reality of owning the house sinks in, you may come to realize that you need those assets, and they aren’t easily replaceable. Remember that just because you have funds available to buy your ex-spouse’s share doesn’t mean that you should.

 To avoid these problems and others, you should speak with a CDFA, before deciding to fight tooth and nail for your home. A CDFA can help you consider solutions that may be more financially advantageous as well as emotionally comforting. For example, for divorcing couples with children in high school, there are agreements that allow them to own the home together until after the children graduate, then sell it together and split the profits. A CDFA also works to help optimize the tax efficiency of the settlement and get as creative as possible for the client’s long-term benefit.

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