Divorce and Your Home
Divorce is a tough situation which opens up many emotional and financial issues, including the decision about the home.
In the midst of the turmoil, what you need most is some neutral, non-emotional, straight-forward, specific answers. Once you know how a divorce affects your home, mortgage, and taxes, critical decisions are easier.
Will one of you continue to live in the house? Will the familiar surroundings bring you comfort and emotional security, or unpleasant memories? Do you sell your home, and start fresh somewhere else?
Only you can answer these questions, but there will certainly be some financial repercussions to your decisions. Can you manage the old house on your new budget? Is refinancing possible? Is it better to sell and buy? What can you afford?
Here are some scenarios that require your attention.
1. Sell the Home and Divide the Proceeds
Your primary consideration is to maximize your home's selling price. The condition of your home, and the real estate market, will help to determine that. Decide on any fix-ups and the market conditions. Then, evaluate what your net proceeds will be after selling expenses, and what each of you will retain. This 'split' may not be 50/50, and could depend on the divorce settlement, the source of the original down payment, and the legislative property laws in your area.
2. Buy Out Your Spouse
If one of you wants to keep the home, then determine how you'll continue to meet your monthly financial obligation. Is one salary enough? Can you refinance comfortably?
3. Have Your Spouse Buy You Out
If you are the one who is leaving, then it's possible you'll have cash in your pocket. However, be aware that if the old home loan is not refinanced, most lenders will consider both you and your spouse as original co-signers to be liable for the mortgage. This liability may make qualifying for a new mortgage difficult if you decide to purchase another home.
4. Retain Joint Ownership
Some divorcing couples postpone a financial decision with respect to the home and retain joint ownership for a period of time, even though only one spouse lives there. While this temporary situation means you have no immediate worries in this regard, keep your eye on tax considerations which may change from the time of your divorce to the time of the ultimate sale.
5. When You Decide to Sell
If you and your spouse decide to sell the home, then work together through a professional to maximize your return. Differences aside, you both should be present when a listing contract is put together, and signed. And, you both should be active in the ultimate negotiations.
6. When You Buy Your Next Home
Use the proceeds from your previous home (or buy out) to determine an affordable price range for your next home. Maintain a clear focus on getting the right home to suit your new situation. Ask a REALTOR®, who offers a house-hunting service, to find a home that matches your new homebuying criteria.
Any thoughts or comments? We'd love to hear from you.
