Many parents start the divorce process by declaring that they would like to keep the marital home after the divorce. Even with the strongest of financial positions, sometimes it is best to wait to make any significant decisions until after you have all the information to consider the multiple issues and possibilities for settlement. A key objective is to make informed decisions. Your house is just one piece of your balance sheet, and the decision to keep or sell cannot be made in isolation. As I often say, “the finances reveal what you can and cannot do and where there may be valuable tradeoffs.”
When parents make the statement that they want to keep the home, I immediately ask, “why?” Most of the time, a parent would like to be the one who provides stability for the children. The mom or dad wants to make sure that the child’s life is not disrupted and that they can stay in the same school with the same friends. However, keeping the home is not the only way to create stability for your children. Most importantly, keeping a home you cannot afford or do not actually want is a surefire way to create instability for your kids.
The marital home is usually a couple’s biggest asset. Unless you have a prenup or other agreement, both of you own 50% of the equity in the house. As an example, if your home is worth 1 million dollars and your mortgage is at $500,000, you each own $250,000 of the equity in the house. And this is where your divorce gets interesting as we determine what you are willing to give to your spouse. You may have an investment account worth $500,000 that your spouse can take. But then this “trade” would leave you with zero savings. There may be a vacation home your spouse will take, but then he does not have a place to stay near the kids. You can see where this gets tricky.
The next big consideration is removing the spouse leaving the house from the mortgage. We need to make sure that the spouse keeping the house has the resources (qualified income and credit) to refinance successfully. We work together as a team to ensure that agreements and plans are going to work for everyone. Additionally, we take care to ensure that there is smooth sailing through the process (i.e., if the refinance is denied, then what do we do?).
As a group, we want to make sure that the spouse staying in the house can afford not only the mortgage but also the taxes, bills, and upkeep. It is never a good financial idea to “go for broke” without an emergency fund or the ability to save for the future.
There are other options if you want to keep the kids in the house, such as maintaining joint ownership. Here too, there are many details that need to be worked out to see if it is a viable option, especially since anything could happen after the divorce, and it is best to separate all finances.
If you and your spouse realize you both need to sell the house, we can talk about the best ways to do that as well. For instance, who is going to make decisions on a realtor, asking price, any repairs after inspections, final accommodations of the buyer, and then the actual sale price. In a heated divorce battle selling a home can be a nightmare. Committing to a quick and peaceful sale will ensure the process is smooth.
In conclusion, keeping the house after a divorce is a decision to be made by a couple and will take into consideration the decision of your marital assets, the cost of carrying the house, as well as future financial positions. Much will depend on your interests and preferences.