Deciding whether to keep the house is intensely personal. It is, after all, the house you built your family in together, that you likely saved for and spent hours decorating. Deciding to keep the house is an emotional decision that can have huge financial consequences. When making this important decision you need to consider both the emotional and financial factors to make the decision that is best for you and your changing family.
A lot of parents want to keep the house for the sake of the kids. The adage is that children need stability and divorce can be chaotic. So, staying in the house looks like a good solution. But children are amazingly resilient and often adapt to change faster than adults, given the right context. In fact, many children transition more easily when everything changes at the same time, rather than piecemeal. The general rule with making changes to a child’s lifestyle or environment is to present the change as a positive thing – kids take their cues from their parents. If the parents act like moving to a new home is devastating, the children will respond similarly.
During a divorce the value of the marital home can be a huge bone of contention. Often, the party who wants the house thinks it is worth a lot less than the person who doesn’t. So, how do you determine value without selling the home?
- You can get market analyses from Realtors in your area. This will get you a general estimate of competitive listing price. There’s no fee for this, but understand that Realtors work on commission. They may over-value the home to get the listing or under-value it for a faster sale.
- You can pay a licensed real estate appraiser to value the property. The problem is that appraisals are really just estimates based on past sales for “comparative” homes. Your home could ultimately sell for much more – or much less.
Before 2008, you could count on real estate to appreciate in the future. Real estate was viewed as a good part of any financial portfolio. That’s no longer the case. Will your particular property be a good financial investment that will grow in value? Nobody knows. The real estate market can be fickle. Thus, when considering whether to “buy out” your spouse’s interest in the marital home, you will have to accept the risk that you may overpay for that privilege.
Does the cost of your mortgage, real estate taxes, and insurance exceed ⅓ of your income? If so, you could end up “house poor” – able to pay for the house, but not the little extras that make life pleasant. With rising interest rates, it is safe to assume your monthly payment will go up if you have to refinance the mortgage.
So . . . even if you are charmed by the monthly payment, understand that it’s only one part of the cost of home ownership. If you take the house, you will be stuck with all repair costs. There is a big difference between the costs for a new home vs. one that is likely to need major fixes. How old is the roof? Furnace? Air Conditioner? Refrigerator? Will you have the means to pay for replacements? How about lawn care? Pool services? Plumbing repairs?
If you have condo fees or homeowner’s association dues that are not part of your mortgage payment, budget for them. And consider the risk of special assessments.
Finally, think hard before relying on child support to make house payments. Are you certain that the other parent will actually pay on time? Support can be modified after the divorce. Anything from job loss to an increase in the custodial parent’s income can be grounds to reduce support. Support also goes away when the youngest child is emancipated, which may be well before the home is paid off.
There are pros and cons to staying vs. moving. If you stay, you don’t have to move! No need to shop for apartments. No need to pack. No movers to deal with.
If you want to keep the house, consider the non-monetary costs of home ownership. Your spouse won’t be around to share household duties. You will have to find time to vacuum, cut the grass, shovel snow, clean the whole place, and change the furnace filters. Even if the kids do some of these chores, you will have to supervise the work – which can be more time consuming than doing it yourself.
Your marital home may not be suited to your new lifestyle. Is it the right size for the new you? Do the features match your circumstances?
You may have a strong emotional attachment to your house. Your engagement photos were taken on the back patio. Each child’s birthday height is marked on the kitchen doorframe. You remember when your toddler stepped in paint and left that tiny footprint. Or maybe you just want to make sure that your ex’s new lover can’t move in. Seeing a therapist may help you work through complex decisions while grieving the loss of both your home and your relationship.
Divorce won’t take away your happy memories. You can take photographs of memorable historical remnants like the baby’s footprint. Give yourself time to grieve the end of your marriage, but remember that keeping the house is a financial decision and emotional baggage will not pay your mortgage. As you look for emotional balance, we recommend the following exercise if continued possession is otherwise not in your long-term best interests:
- Make a list of each reason why you like the home.
- For each item, ask: How could I get that somewhere else?
- Investigate the cost/savings that would take.
- Love the plantation shutters and built-in bookcases?
- Perhaps another home will have those features or you can have them installed.
- Are peace and quiet most important, or do you want to live somewhere with lots of kids and neighborhood potlucks?
- There are probably plenty of homes that match your preference as long as you understand your priorities.
- Did you build built the deck or remodel the kitchen with your own hands?
- Perhaps an affordable home that needs some tender loving care would let you build similar pride of ownership at a lower cost.
- Are your children going to miss having all their nearby friends?
- Those friends will be a videochat away and adapting to a new social environment is an important skill for children.
OTHER THINGS TO CONSIDER
Time. How long do you want to live there? If you plan to keep the house forever, asking for it in the divorce makes more sense than if you plan to move in a couple of years.
Trade-Offs. Most divorces split the marital assets 50/50. What do you have to give up in other assets to keep the house?
Cost of Alternative Housing. How much will replacement housing cost? What can you afford under post-divorce?
Income Tax on Home Sales. Will there be a profit when your house sells? If the profit on your house is between $250,000 and $500,000, the tax will probably be higher after your divorce, so selling now might make more sense.
Re-Financing. Some folks think that a Quitclaim Deed gets you out of the mortgage. It does not. The deed you sign transfers ownership of the property. It has nothing to do with the mortgage debt. Most mortgage companies won’t take either spouse’s name off the mortgage when there’s a divorce. If you took out a joint mortgage, the only way to remove one name is to sell or refinance. Talk to at least two mortgage brokers to find out whether you qualify to refinance and what your payments will be under current interest rates.
Tax Deductions. If you keep the house, you will get future tax deductions related to the property. Whether that is actually any help will depend on your total financial circumstances. Check with your tax professional before relying on this.