Divorcing? Ask Yourself, Is the Marital Home Really A Prize?

Home is where the heart is . . . at least until it isn’t! In the U.S., divorcing couples fight hard over the marital home. As if being awarded the home in the divorce means you have won. This is certainly not the case in most instances and depending on several factors, you may not want the home.

For many couples, the marital home is their largest single asset. But honestly, the home can be a huge burden and you have to make a financial decision when looking at the home and try your hardest not to think emotionally.

When you get a divorce, everything changes. If you can put your mind in a place where you can accept that things are about to change drastically, the process will not only be easier to stomach, but you will make decisions that will benefit you in the long run.

In short, you must train yourself to look at this house as a piece of property and nothing more. Do not see that wall you took an entire weekend to paint yourself as part of your being, but see it as a wall that you painted once. Rest assured there will be a new wall for you to paint in a different color in your future.

Now that you are mentally prepared to look at this house through a financial purview not an emotional one, here are the items you need to consider when deciding if the house is financially in your best interest to fight for:

1.    Can you afford the real cost of owning that house now and in the future?

You must consider the dollar amount it will cost to run a household alone. Do not calculate in child support or spousal maintenance – after all, many times even if one party is awarded this type of support, collecting it is not certain. So plan for yourself.

Look at the mortgage; can you take this over on your own? Now add property taxes, insurance, repairs/maintenance, furnishings, and of course the never ending living expenses (gas, water, electric, food).

If your answer is “I don’t know” or “that might be really tight” then you  need  to consider downsizing. Start small and build. I know it isn’t something you want but many times during a legal process what you want is the opposite of what you must do. The good news is it is temporary. Things will not always be this way and it will be OK, as long as you plan properly. It is the people who fight without understanding the full picture and having a plan who end up losing after the divorce.

2.    Can you refinance the mortgage on your own?

You can be guaranteed that whichever spouse  leaves  the  home, they  will want to take their name off the mortgage. This presents a whole new set of challenges for the person who stays in the home. You will have to qualify by yourself with your income alone to refinance. While you can attribute spousal support and child support towards qualifying for a loan, lenders know that often times these payments are not always made reliably so the only time the lender will consider these types of “support” is when there is a good track record of those payments being made. When you are at the onset of a divorce there is no such history so you want to make sure your income is enough to refinance. If not, then again you will need to consider downsizing.

3.    Can you sell the house when you want to?

You must check the market conditions for the value of the home and the likelihood of sale. You don’t want the house to sit on the market for half a year and go into debt while waiting for a sale. If you think it might be hard to sell the house then consider letting the other spouse keep the residence. Then you can get your value out of the home up front and let him or her deal with the headache of trying to get the value out of the property through a sale.

Or you may want to  agree to sell it while the divorce process is underway, that way both parties are still on the hook, making payments easier, then splitting the profit. This is a case‐by-­case item and you will want to speak candidly with your divorce lawyer about.

4.    Can you handle the tax burden if you do sell the house?

If you sell your house for more than you paid for it, then you are looking at capital gain tax. In 2013, the federal max went from 15% to  23.5%.  Now  there  is  talk of raising the percentage to an astounding 28%! And that is only the federal – you will be paying the state capital gains tax as well. Don’t forget to  calculate in the 6% realtor fees and other closing costs associated.

That doesn’t leave a lot of money in your pocket. If you are closing on your own after a divorce, you could be losing thousands, because in the divorce you would have been credited your portion of the full market value minus the mortgage. This is where the numbers get real and are imperative to consider.

5.    Do you really want that house?

Many times when we fight in a divorce, we are fighting because we are angry and want a leg up on the soon- to-be-ex. But think about this carefully, do you really want to go home at the end of the divorce to the home you shared with your ex? Do you want that in your life? Will staying in the home deter you from moving forward in your life?  Use that  rational mind to protect  your  emotional  side. Speak  with folks who have been through a divorce, many times they will tell you that it wasn’t until after the decree was entered into that reality set in.

Many things need to be considered during the divorce process and whether or not you want to fight for the marital home. You must think financially not emotionally. Go through  the details, do your research, educate yourself, invest in hiring professionals at least for those limited issues you really could use the advice on (tax advisor, realtor, financial advisor, attorney).

In the long run it will be worth it, I can promise you that. Remind yourself that this is a phase in life, you can handle this and you will come out stronger as long as you do yourself the favor and plan accordingly.

Lastly, be cautious of any deal that seems too good to be true. When the other side offers you something, like the marital home, you  must consider every detail and every implication it may have.

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