The Impact of Divorces on Your Home
Avoid These Housing Mistakes When Getting Divorced
Divorce is a tough situation which can cause several emotional and financial issues. One of the most important decisions is what to do about the matrimonial house.
During these difficult times what you need most is some non-emotional, straight forward, specific answers. Once you know how a divorce affects your home, your mortgage and taxes, making critical decisions becomes easier. Neutral, third party information can help you make logical, rather than emotional, decisions.
Your first decision will be what to do with the current home. Will the familiar surroundings bring you comfort and emotional security, or unpleasant memories? Do you want to minimize change by staying where you are, or to sell your home and move to a new place that offers a new start?
Only you can answer these questions, but there will most likely be some financial repercussions either way you decide. Here are 5 common options most people have when deciding what to do with the matrimonial home.
You have 5 basic housing options when in the midst of a divorce:
- Sell and divide.
- Buy out your spouse.
- Have your spouse buy you out.
- Retain your ownership.
- Rent the home.
It’s important for you to understand the financial implications of each of these scenarios:
Sell and Divide
Your primary consideration under these circumstances is to maximize your home’s selling price. Make sure you understand what your net proceeds (after selling expenses) will be, and after determining what your split of the proceeds will be. Note that the split may not be 50/50, but rather may depend on the divorce settlement, the source of the original down payment, and the legislative property laws.
Buy Them Out
If you intend to keep the house yourself, you’ll have to determine how you will continue to meet your monthly financial obligations, if you now only have one salary. If you used two incomes to qualify for the old loan, re-financing on your own might be a challenge. Borrowing against your equity may be a solution to help you with the down payment.
Have Them Buy You Out
If you are the one who is leaving, you have the opportunity to start again in new surroundings with cash in your pocket. However, be aware that if the old home loan is not re- financed, most lenders will consider both you and your spouse as original co-signers to be liable for the mortgage. This liability may make qualifying for a new mortgage difficult for you if you decide to purchase a home, even though you won’t have legal ownership of the “old” home any longer
Retain Joint Ownership
Some divorcing couples postpone a financial decision by retain joint home ownership for a period of time even though only one spouse lives there. While this choice means you have no immediate house financing worries, keep aware of tax implications which may change from the time of your divorce to the time of the house’s ultimate sale.
Rent The Home
Divorcing couples have the option of also keeping the home and renting it out, a way to invest in your kids future. Putting them ahead of your own needs. If the rent covers all expenses, why not consider this route as a source of additional income.
When you Decide to Sell
If you and your spouse decide to sell your home, it will be important to work together through a professional to maximize your return. You both should be present when a listing contract is put together and both of you should understand and sign this contract, and both should be active in the ultimate negotiations. Keeping emotions out of the selling process will end up with the best potential results in the long term.
When You Buy Your Next Home
Use the proceeds from your previous home to determine an affordable price range for your next home. Maintain a clear focus on getting the right home to suit your new situation. You may wish to review options with an agent who offers a house-hunting service to help you find a home that matches your new home-buying criteria.