Chances are, the marital home is the largest asset in your divorce. Therefore, what you decide to do with it can have major consequences for your divorce case and, more importantly, your post-divorce finances. Before you decide to stay or to go, there are 4 questions that you need to ask yourself:
- Why do I want to keep the marital home?
- Is it possible for me to keep the marital home given my other assets and debts?
- Can I afford the mortgage for the marital home by myself?
- Do the related marital home expenses fit into my post-divorce budget?
Why do I want to keep the marital home?
There are a lot of reasons why you would want to keep the marital home. While some reasons are practical, others are emotional. Some common reasons I hear from clients are:
- I won’t be able to rent something in this school district/area for the same price as my mortgage;
- I don’t want to move my children;
- We put a lot of work into this house;
- I really love my house;
- There is nothing in this area I want to/can buy;
- I don’t think he/she should get to keep it; and
- I have a lot of memories here.
Any of these sound familiar?
Okay, real talk time. While all of these reasons have some validity, you need to take the emotions out of this decision. Most of my examples above have nothing to do with whether it is financially beneficial for you to keep your home. While I understand that you want to keep the changes for your children to a minimum, it is much more important to be able to offer them a solid financial future (and yourself too!) than making sure that they stay in their room.
So, when you are deciding to keep your marital home think, is this decision based on the best interest of my finances or my emotions? If it is the latter, it’s time to rethink.
Is it possible for me to keep the marital home given my other assets and debts?
The marital home is probably not the only asset in your marital estate. In order to decide if you even can retain the property after divorce, you need to look at all of the other assets and debts that you and your spouse have. Let’s look at some examples.
Example #1
In many of my cases, the couple has a house and retirement assets. However most don’t have significant cash assets like bank accounts or investment accounts. If you keep the house, you are likely keeping the only source of cash (the equity in your home). How is your ex going to get any cash? It is likely that he or she will not want to only keep the retirement assets as those are taxable and not usable for many years without incurring a penalty. And what if there is not enough retirement assets to divide up your assets and debts fairly?
In such a scenario you have two options: (1) sell the home to find a source for cash for both parties; or (2) refinance the mortgage and get cash out so that one spouse can pay off the other for their share, also called a buyout. However, by refinancing the mortgage for a buyout you will likely increase your monthly mortgage payment. Can you afford that? Do you want to?
Example #2
You and your spouse have a house but a lot of personal debt. Those debts will need to be divided or paid off at the time of the divorce. How will you share this debt? What if they are in joint names and can’t be divided? Wouldn’t it likely be a better financial decision to sell your home to, again, find a source for cash, to pay those debts?
You can’t just think about keeping your home in a vacuum. This decision will be affected by your other assets and debts. You need to look at the whole asset and debt picture to help determine whether it is (1) possible and (2) beneficial for your post-divorce financial life.
Related: 3 Easy Steps to Dividing Your Marital Property
Can I afford the mortgage for the marital home by myself?
So you’ve gotten through questions #1 and #2 and you still think you should keep your home. Now we need to talk about the mortgage (queue scary music!). And, when I say mortgage I mean your first mortgage, and any home equity lines of credit or second mortgages that you have on the property. This is a 2 step process:
Step #1: Can you afford the current mortgage payment on your own?
First, look at what your monthly mortgage payment is right now. Can you afford this on your own? In order to determine this you need to look at your present income and what monies you will be receiving for child support and alimony (if any).
What is the answer? If the answer is, I don’t have enough income, you can’t keep the house! Think of it this way. If you only have $20 in your wallet and you wanted to buy a pair of Manolo Blahniks, would you be able to? No. Why? Because you don’t have enough money. Again, take the emotions out of it. Do the math. If you don’t have enough you don’t have enough.
What if the answer is yes? Okay, go to step #2. You are probably saying, what? We aren’t done? Nope!
Step #2: Can you afford the new mortgage payment for the marital home if you have to buyout your former spouse?
While it is great that you have enough income to pay your current mortgage, what if that amount has to increase because of your divorce settlement? Remember Example #1 above? (If you skipped ahead go back you speed reader!)
In that scenario, the spouse wanting to keep the marital home had to refinance the mortgage and do a buyout in order to give the other spouse their share of the house equity. This often happens in cases where there are no other cash assets (again, bank accounts and investment accounts) to compensate the spouse that is not keeping the home for their share of the value of it.
When you refinance a mortgage for a buyout you will generally have to increase the monthly payment on your mortgage because you are increasing the mortgage balance. So, you need to ask yourself, can you afford this new monthly mortgage payment given your income? If the answer is no then you will not be able to keep your home. Plain and simple.
Related: How to build a solid financial foundation post-divorce
Does my credit allow me to qualify for a mortgage for the marital home?
Refinancing the mortgage into your name alone is not just about your ability to make the monthly payment. You will also need to qualify for a new mortgage solo. While some divorce settlements may not require the spouse keeping the marital home to transfer the mortgage out of joint names, most do. Therefore you will need to be able to get the mortgage company to agree to remove your spouse and put the mortgage in your name alone.
In order to do this, you need to make sure that your credit score is in tip-top shape. Even if you have the income to make the payments, the mortgage company may deny your request if your credit score is low or if you have no credit at all.
Worried about your credit? Check out my article, Credit and Your Divorce for some tips on how to boost your credit profile after separation.
Do the related marital home expenses fit into my post-divorce budget?
So you’ve determined that you can make the monthly mortgage payments and can qualify for a mortgage solo. You think, Liz, we’re good right? I can keep the marital home! Sorry, but not necessarily. I know I’m such a Debbie downer.
As a homeowner, you know that the mortgage is not the only expense for your property. And, just because you may have one less person living in the house, the expenses are unlikely to decrease significantly. So, when deciding to keep the marital home you need to consider whether you can pay for the mortgage as well as the related home expenses.
The basic marital home expenses you need to consider
While every house and case is different, I’ve compiled a list of household expenses that you will likely need to satisfy:
- Utilities (gas, electric, water, sewer);
- Trash pickup;
- Cable/Internet;
- Homeowner’s association fees;
- Real estate taxes (if not part of your mortgage payment);
- Homeowner’s insurance (if not part of your mortgage payment);
- Snow removal/lawncare;
- Landscaping;
- Pool maintenance;
- Pest Control; and
- Fireplace cleaning.
In order to see if you can pay these monthly bills and your mortgage, I suggest creating a monthly budget. This way you will see if you satisfy these expenses and, you know, eat something other than ramen noodles.
The extraordinary marital home expenses to consider
Not only do you need to consider your regular monthly household expenses, you also need to make sure that you have a way to pay for non-routine marital home expenses such as emergency repairs or improvements. Again, here are some examples:
- New roof;
- Septic system;
- Heating/AC repair or replacement;
- Indoor and outdoor painting;
- New windows;
- Foundation repair;
- Termite damage; and
- Storm damage.
Really, this list could go on and on. The point is that you can’t just be able to squeak by satisfying the basic expenses of home ownership. You also have to have a plan for how you would pay for these bills should they arise. Do you have savings or room in your budget to start a savings account for these potential expenses? If not, you may be setting yourself up for financial disaster by keeping the marital home. Not a great way to start your post-divorce life.
Related: Budgeting for your best post-divorce life
So should you keep the marital home or not?
Divorce is all about change and transition. For some, having to leave the marital home is a external reminder that their whole world has turned upside down. Therefore, it is logical that you may want to stay in your house to feel anchored to something.
However, keeping your marital home when you can’t afford to will become an anchor that will sink you. Don’t let it. Ask yourself these 4 questions and make a calculated financial decision as to whether keeping this property is right for you and your best post-divorce life.
Have a comment or a question about whether you should keep your marital home? Have you been through this decision process and wish you made a different choice? Let me know in the comments!
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