When you separate or divorce, one of the most important decisions that must be made is what to do with the house. Do you want it? Does your spouse want it? Can either of you afford it? What should you do with it?
The answer depends on your particular situation, and no two situations are alike. Making the wrong decision on this issue can have serious, far-reaching implications — custody, financial security, or financial ruin.
The following issues (at a minimum) should be considered in your analysis:
- Dealing with the mortgage
Can you afford to make the mortgage payments? What if your spouse is required to provide financial assistance to you (as alimony, debt contribution, or child support)? Will your credit history allow you to refinance the mortgage? - Factor in upkeep costs
In addition to the mortgage, you should also consider the other “normal” expenses that accompany home ownership: utilities, maintenance, and repairs. It makes no sense to only focus on the mortgage without those other items that are inevitable if you own a home. - Consider tax implications
Tax issues come in many different forms. Of course, there are property taxes, which can (and typically do) increase over time as the property appreciates in value. If you have a mortgage, you will need to factor in the (positive) impact of the mortgage interest deduction, the head of household deduction, and the capital-gains tax exclusion. - Trading assets
Depending on the amount of equity in the home, you may have to give up something else in order to receive the house. Many times, the husband will keep his retirement account and the wife will receive the house to equalize the value. However, it is extremely important to have an accurate value of the house. Most times, having an appraisal performed is a fantastic investment because the house can be worth considerably more or less than your estimate. - Consider downsizing
In some cases, it makes sense to downsize immediately to a smaller house, especially if the expenses involved in keeping the house are more than you can afford. Some people associate the house with their failed marriage and are anxious to start fresh somewhere else.
On the other hand, in some areas of the country, rents and housing prices are so high that even a smaller house or condo may be out of your price range. Also, it may not be possible to find an affordable house in the same or another high-quality school district. - The long term
Consider now only the “right now” or the “what feels good.” Think about what you want and where you want to be in five years, ten years, or more. Resist the temptation to get caught up in the battle and try to “win” at any cost. Get the advice of a good, qualified family law attorney and other financial professionals, if need be. This decision is too important for you not to do so.
Source: “Should you keep the house in a divorce?” by Amy Crane published at MSN Money.