Keeping Your House in a Divorce
Many people have sentimental attachments to their homes. A home can be filled with happy memories of starting families and raising children. You may be close with your neighbors or have close ties with your community. If you are wondering how to keep your home during a divorce, you are not alone. It is typically one of the largest assets you can own and one with the most sentimental value as well.
Even if you don’t have those sentimental ties to your house, the thought of moving may be the last thing you want to do while divorcing because you are going through a major transition! Am I right? However, keeping the house might not make financial sense. This is one of the biggest mistakes I see people make when going through a divorce. If you would like to keep your house, here is some advice to consider. Keep reading!
Before you do anything, take a look at the full financial picture. Determine the value of your home and possibly get an appraisal. If you don’t want the expense of an appraisal and both parties agree on the value, then you can use that value for negotiations. Keep in mind that negotiating gives you a lot more flexibility and control than taking your case to court. Once you know the value of the home, you can determine how much equity is in the house by taking the value of the home and subtracting any loans you have on it. If no loans, the value and the equity are equal. Also keep in mind that if you want the house, the equity will go on your side in the marital settlement agreement.
If the house is paid for…
If you don’t have a loan on your house, then you will have more options. As you negotiate your settlement, you could choose to offset the house being put on your side of the marital settlement with other assets you may be willing to give up to your spouse. Remember, though, that you will want to know the cost basis (how much money you have put into it) before negotiating each of your assets as she may have a tax consequence when you sell it at some point in the future. Get cost-basis information before the divorce is final!
If you do not have other assets to offset the value of the home or you do not want to offset the value of the home with other assets, you might choose to get a loan to pay your spouse out on his/her portion of the equity. If you are considering a loan, take extra care not to negatively impact your credit score during your divorce. If you do decide to take out a loan, make sure you have enough cash flow to cover everything associated with the house and the new loan payment.
If there is still a mortgage on the house…
If there is still a mortgage on the house, keeping the house might be a little tricky! Ideally, you will refinance it in your name so that your spouse is no longer responsible for the debt. Some lenders will actually let you assume the existing mortgage, so it's worthwhile to check and see if you have that option.
The biggest problem can be that the person who wants to keep the house may not have the income to get approved for refinancing. If this is the case, you may be able to find someone to cosign your loan. Regardless, make sure you start talking to a lender as soon as possible if you are planning on refinancing.
Remember that deciding to keep a house needs to be more than an emotional decision, it needs to be a smart decision! Make sure keeping the house fits into your overall financial picture.