Should I Keep the Home in the Divorce?
Deciding whether or not to stay, sell or leave the marital home to your spouse in a divorce is a complicated decision
Divorce rocks your very foundation - literally and figuratively. While you are licking old and fresh emotional wounds, you may very well be coming to terms with the fact that the home you raised your children in, is up for grabs in the divorce. Whether or not to keep the house is a sensitive decision and understandably so, of all assets to a couple's name, the marital home usually holds the most financial and sentimental value. Thankfully, of all the complications in my divorce, this was not one of them. Having recently moved to a new city and new home, I had absolutely no ties, emotional or otherwise to our house. In fact, the neighborhood and surrounding community had never quite felt like home to me, and as a single woman I knew I would not be safe there. When my ex-husband made it clear he wanted to keep it, I happily obliged.
For the majority of people out there, particularly the stay-at-home parent that has spent the most time in the marital home, it does not always go this way. In fact, deciding what to do with the marital home during a divorce can be so complicated that many real estate agents are becoming certified as either divorce specialists or certified divorce real estate experts. That’s right, it is quite the burgeoning niche in real estate. As I see it, there are three major areas of consideration when deciding what to do with your house during a divorce. The largest, and most obvious is the financial, but there are also practical and emotional components to think about as you weigh your options. In this post I will simplify the decision making for you with questions to mull over because, as with all things divorce knowledge is the cure, especially when deciding whether or not to keep the marital home.
Financial considerations to keeping or selling the marital home in the divorce
This next part is quite dry, and generally speaking, if talking about finance is like watching paint dry, then writing about it is like sticking pins in my eyes. But, nevertheless, I have attempted to simplify it into the most important chunks. Remember, while educating yourself is necessary if you are pushing to keep the marital home in the divorce, consulting a professional such as a financial advisor or certified divorce financial analyst is crucial.
Do you have the money to buy your spouse out and refinance the home?
Regardless of what you ultimately do with the home, you and your husband/wife will need to agree on a fair market value so that an accurate amount can be reflected when it comes to dividing assets on your marital balance sheet. This can be done by asking a realtor for comparables (comps), but better yet, a formal appraisal would be best and should set you back $400 at the most. If you want to keep the home, a good strategy that takes taxes into consideration will be necessary to determine the smartest way to buy your spouse out of their portion. For example, are you willing to give up a portion of your share of marital investments and retirement accounts so that you can cover your spouse's share of equity? What if your soon-to-be ex agrees to a lower purchase price in return for less spousal support or alimony? Can you refinance the house and take out a new mortgage so that you have the cash to pay your spouse? In most cases a buyout goes hand in hand with refinancing and is part of the divorce settlement.
How does divorce affect my credit and ability to qualify for a mortgage/loan?
A word to the wise about credit, which will now be based on your financial strength alone. While getting divorced or being divorced does not affect credit per se, financial troubles caused by the divorce can have a negative impact on your credit score. For example, going from a two to one household income can create financial strain that leads to late or missed payments on credit cards and other bills. If payments aren’t being made to accounts jointly held with your ex or soon-to-be ex, your score will also be affected.
A mortgage pre-approval or an equity buyout pre-approval from a qualified lending professional that is also a certified divorce lending professional may be recommended if you need mortgage financing once the divorce is final. This can help identify potential hurdles in obtaining funding and alleviate any concerns of future litigation should there be an inability to fulfill the requirements in the divorce settlement. The lender that issues the pre-approval will need to examine all documents including potential marital settlement agreements (MSA), tax returns, bank statements, and credit reports, all of which factor into what is known as the debt-to-income ratio, an important metric in qualifying for a loan. Similarly, if you are already divorced the MSA is particularly important when qualifying for a mortgage or any loan as it has important financial information such as alimony and/or child support which are also used to determine the debt-to-income ratio.
Another practicality, you will need to transfer ownership of the house to your name via a quitclaim deed. A quitclaim deed is relatively straightforward and is just the legal term for adding or removing an individual to the title of the home. However, keep in mind, the deed only affects ownership and not the property's mortgage and financial obligation.
Now is a good time to mention that if you are counting on maintenance and child support to qualify for a mortgage, you need six months of payments before the mortgage closes which essentially means waiting seven months after the divorce to refinance. You will also need to show proof that you will be receiving at least that amount for three years after the closing. Can your monthly cash flow cover these sorts of financial commitments and, if so, will you be left house poor? The emotional turmoil of divorce is enough, do yourself a favor and really project the numbers out so that you are not struggling to make monthly house payments.
Have I considered ALL the costs of keeping the home?
Clearly there is a lot to unpack when just considering the mortgage and buyout, but what about the smaller and/or hidden costs? Do not forget about monthly upkeep, maintenance, a cleaning service if you have one, and eventual selling costs which are approximated at 7 to 10 percent of the home’s value. In addition, if your home has appreciated more than $250,000 over the years (lucky you) you will likely owe some income tax. Finally, there is an opportunity cost to putting your chunk of the marital pie in property that may not appreciate as much as other investments.
A snoozefest discussion I know, but a very important one at that and the more you have these kinds of conversations, the more empowered you are to make a decision that is right for you and your children. I’ll provide one more anecdote in closing. Ask any divorce attorney, and you will hear that they have never had a client regret selling or leaving the home to the other spouse; yet they have several clients return one or two years out of divorce house poor and struggling to keep up with all the carrying costs. Food for thought…
Practical implications to keeping or selling the marital home in the divorce
You have to ask yourself how you will really feel living alone in the house, and while safety is a huge consideration, it is not the only one. Will you be rattling around in a huge, vacant home? Sure, it may seem like music to your ears to finally have control over the remote or to not have to pick up after someone that has no regard for where their belongings land, but how feasible is it? As a mom of three really young children, I always use a middle of the night ER run, one of my greatest fears, as an example. If there was an emergency do you have someone nearby that can step in to help or care for your children? In my previous neighborhood this would have been a “Hell no”, whereas in my current complex I am surrounded by quite a supportive community and several individuals come to mind if I were in desperate need. On the other hand you may be quite settled in your neighborhood, perhaps even close to some family, and giving that up would be a huge loss of support.
School districts and your children’s ages will be a big determining factor in whether to sell or keep the marital home in your divorce. Depending on your children’s ages, you ideally want them to stay in their current district if they attend public schools. This would mean that if you do decide to make a move, you are limited to certain areas and real estate. Perhaps your children are older and ready to graduate, in this case staying in the home for the near future may make sense and afford some stability as they finish out their high school years.
Another important point of discussion is, should the house need to be sold, are you and your partner at least cooperative enough that you can work together toward this cause? Will you select a real estate agent to handle the sale together or is there enough trust that one of you can hire the best professional for the job? Once the process is underway, will both of you be involved or is one able to take the lead, communicate with the agent and make choices on the other’s behalf. It goes without saying that the better the communication between you and your spouse or ex-spouse, the more efficient the sale will be. This can be especially important if you are relying on the sale of the house property to acquire finances to move forward.
Yet another silver lining of choosing to rent while the dust settled was that, during a time of my life where I truly could not handle one more issue, a broken dishwasher or light on the fritz was taken care of by the building management. All small nuisances, but compounded in frequency, can add up to major inconveniences during a time of life where your primary focus should be on you and your children’s healing.
Emotional factors when deciding whether to keep or sell the marital home
Emotional ties can be as or even more difficult to unravel than financial, albeit in different ways. Realizing that the timeline on your forever home may be running out can be understandably sensitive. There are likely memories of your children’s milestones around every corner and the decor is replete with special pieces that reflect your story and unique style. Plus, moves are inconvenient under the best of circumstances, the mere thought of adding one to your plate triggers convulsions.
To all the above I say, pick your poison. While some of us may prefer a fresh start without memories of an ex-spouse lurking in the shadows, others could find solace in the familiar and reassurance that children, while emotionally uprooted will physically stay put. As I already mentioned, in my case it was a no-brainer and I could think of nothing worse than staying in a home that was symbolic of my previous life. I needed to close the literal and figurative door and I have not looked back since.
Something else to consider, is the house really that important to you or does it represent some sort of stronghold over your soon-to-be ex? On some level do you think the children will defer to you if you are the parent that remains in the home? Maintaining ownership and control over the house simply to have a one up on your spouse, will surely backfire in the long run. More than likely, the children are less attached to a physical space than you and there is opportunity to leverage this in the form of a new adventure for them. Short of that, if they have a difficult time moving there are a number of creative ways to sweeten the deal such as designing their bedroom, being closer in proximity to a friend or, if you want to get really crazy, a new pet.
Clearly deciding whether or not to part with your house is a decision fraught with emotion yet dictated very much by money and practicality. You may find my stance somewhat biased, and while I do not mean to sway you in any particular direction, I do want you to make a decision with eyes wide open. At the end of the day, whether you start fresh or stay put, the same rule applies. It is not the home itself, but rather what happens inside the home that makes all the difference to you and your children’s happiness.
Sources:
Locus, Heather; “The Next Chapter,” Balasa Dinverno Folz, LLC, 2018
National Association of Divorce Professional, “CDS Manual”, 2020
