When a marriage ends, housing can be one of the most challenging transitions to work through. If you are facing this hurdle, try as much as possible to remove emotions from the equation and use the following factors to make a choice that will set you up for a more secure financial future.
Know your options
If you own a home with your spouse, you have four main options for the house:
- You can jointly sell the house and share the profit, if you have equity in the home (the house is worth more than what you owe on the mortgage)
- Buy out your spouse
- Be bought out by your spouse
- Keep joint ownership
Facts to consider
- The settlement—Understand that the rights to the house aren’t necessarily going to be split 50/50. Every situation is different and states often have unique laws. Consult with your divorce attorney or your Certified Divorce Financial Analyst (CDFA) to get a handle on what your share of the home’s value is anticipated to be.
- Children’s needs—If you have children, clearly one of your first priorities will be to provide for them the best you can. Factors like their schooling, safety, proximity to family and friends, etc. will come into play. Making a list of the pros and cons of different options as they relate to their best interest can help to clarify your choice.
- Your budget—Before you know what scenarios are realistic for housing, you need to know what you will be able to afford on a monthly basis given your new financial circumstances. Complete a budget based on your new income and expense levels to determine what is affordable. No matter how attractive a particular option might seem, it will only make your life more stressful if you can’t keep up on payments long-term.
- Could you buy a new house or refinance your current one?—If you are interested in the possibility of selling the home and using any profit you reap to buy a new house or condominium, or want to refinance the home so that it is just in your name, you need to assess your ability to do it. Think about your credit standing and whether or not your current credit score and debt and income levels would qualify you for a mortgage by yourself. If you are unsure about all this, talk with your financial institution about how they see you as a potential loan candidate.
- Income security—With two people, it is generally much easier to stay up on mortgage payments. Even if one person loses their job or is out of work for a period, the other person is there to pick up the slack during that time. If you are considering taking on a mortgage by yourself, take into account what would happen if you were to unexpectedly see a sharp drop in income or increase in expenses. If you are thinking of living in your current house or buying a new one, you may want to consider taking in a roommate or family member to help with the mortgage and bills.
- Tax considerations—This kind of living decision hinges on more than just concerns of comfort and cash flow. There could be a sizable impact to your taxes too. Make sure to consult with either a CDFA or a tax professional to weigh the ramifications of different options.
There is no “right for everyone” answer to this question. However, if you carefully consider the available options, you should be able to arrive at the one that is best for you and for the future.
© 2012 BALANCE