Divorce is a wild rollercoaster ride of emotions with major life-changing decisions that need to be made during a period of tremendous stress. One of the biggest decisions has to do with homeownership after divorce. Will you stay in your home? Will you sell it? Will you buy a new home? Will you rent?
As far as your divorce attorney, financial advisor, and accountant are concerned, once the issues surrounding your children – custody, visitation, etc. – are resolved, the rest of your divorce issues are, more or less, about the money. In most cases, you will either sell your home, or one of you will keep it, your assets and debts will be divided, and someone will probably have to pay alimony and/or child support.
But to you, this is your life, your savings, your children, your future…your home. And I want to make sure that the decisions you make today about your marital home and all your other assets, will provide you with financial stability in your new post-divorce life. You need to think financially, not emotionally!
I know it can be hard to separate the emotional from the practical financial decisions that need to be made. After all, the house has been your home. My goal is to help you set yourself up for the best post-divorce life possible.
Home Ownership after Divorce
Keeping your home could be an emotionally safe decision. Doing so will help you avoid adding additional trauma to your children’s lives. By staying put, the kids won’t have to switch schools, make new friends, or move to a different neighborhood (which, in and of itself, can be extremely stressful for children, even if their parents weren’t divorcing).
And for you, you hope keeping the home will give your children some sense of stability and normalcy. The children can remain in the home they know, the home they grew up in, and the home they can come home to from college and maybe, in the future, come visit with their own families.
And let’s not forget about YOUR emotional ties to your home. While parents tend to do everything to protect their children, it is important to acknowledge your feelings in this. To you the home is not just walls, a roof, and windows – it might have been your dream home and the place you envisioned staying in forever to raise your family. You have friends close by and are probably connected to your community through activities, volunteer jobs, and employment.
For all those reasons, saying goodbye to your home can be gut-wrenching.
And while it’s important to acknowledge all those feelings and emotions, you need to think about the many financial aspects involved in keeping your home. So, let’s talk about those financial aspects and exactly what will need to happen for you to keep your home. In order to ascertain if this could be a viable option for you, I strongly suggest that you bring in a divorce mortgage expert early in the divorce process to work with you and your divorce attorney. You need to see if keeping your home is financially feasible before spending a lot of time and money on legal fees negotiating for something that may not be possible.
If you decide to keep your home, you will probably need to buy out your spouse’s share of the home’s equity. The first thing you need to know is how much marital equity is in the home. I strongly suggest getting an appraisal done by a qualified and licensed real estate appraiser who is very familiar with your neighborhood.
Once you know what your home appraised for, just subtract all mortgages and liens from that value and what remains is your equity, which will usually be subject to division in your divorce. (Keep in mind there are exceptions – for example, if you have a prenup or postnup which details what will happen to the home in the event of divorce. Also, you might have a hybrid situation where the equity in the home may be part marital and part separate. This could occur because one spouse owned the home prior to marriage and/or a combination of marital and separate funds were used for a downpayment, mortgage payments, renovations, etc. Each of the 50 states handle this hybrid situation differently).
Here’s an example of computing equity where the home was acquired during the marriage and 100% of all payments were from marital funds: If your house appraised for $500,000 and you have a $300,000 mortgage balance, your equity is $200,000. If we assume a 50-50 division of this asset in your divorce, you will need to give your spouse $100,000 for his or her share of the home’s equity.
Where will you get that money?
Perhaps your share of other assets, such as bank, brokerage and retirement accounts, are more than sufficient to cover that $100,000. (Just remember to take into account any potential tax implications and please don’t use your last penny to keep your home. You don’t want to be house rich, but cash poor).
If you don’t have sufficient assets to cover that $100,000, perhaps you can qualify to refinance your existing mortgage with a larger mortgage. In the above example, if you can qualify for a $400,000 mortgage, you can pay off the existing $300,000 mortgage and use the remaining $100,000 to pay your spouse for their share of the home’s equity.
The big question is, can you qualify to refinance the balance on your existing mortgage or obtain an even larger mortgage? That question should be answered as early as possible in the divorce process, so you don’t waste time and money going down a rabbit hole that leads nowhere. And that is why I suggested earlier in this article to bring in a divorce mortgage expert as soon as possible.
It’s important that you and your divorce attorney understand the various requirements that mortgage lenders have for divorcing people and that the terms and conditions that are being negotiated and will be incorporated into your Divorce Settlement Agreement will be in compliance with those requirements. Your Divorce Settlement Agreement might be perfectly fine and fair from a legal standpoint, but its terms and conditions might be fatal when it comes to refinancing your mortgage or even obtaining a new one. Remember you and your attorney are probably not mortgage and real estate experts and therefore might not be aware of all these ever-changing requirements.
Let’s look at a perfect example of this. I have reviewed many Divorce Settlement Agreements that state that the spouse keeping the home has 90 days to refinance the mortgage into their own name and if it cannot be done within those 90 days, the home will have to be listed for sale. Although that sounds reasonable and is perfectly legal, in some cases that might be fatal to the refinancing of your mortgage.
Why?
Because if you are the spouse who wants to keep the home and you will be using alimony and/or child support as income to qualify for the mortgage refinancing, one of the requirements for most mortgages is that you have received those alimony and/or child support payments consistently and on-time for at least six months prior to applying for the refinancing. Since your Divorce Settlement Agreement says you have only 90 days, you most likely will not be able to refinance within that timeframe and if your now ex-spouse holds you to the Agreement, your home will have to be listed for sale.
This is just one of many examples where things can go drastically wrong if you aren’t aware of all the up-to-date requirements that mortgage lenders have, and the negotiated terms and conditions of your Divorce Settlement Agreement aren’t in compliance with all those applicable requirements.
My book, Divorce House Sense®: How To Keep Your Martial Home So You Can Move On, Not Out®, explains many of these requirements in detail as well as how you might be able to buy-out your spouse’s share of the marital equity in your home and refinance the mortgage into your own name. I also reveal many relatively unknown, out-of-the-box methods and strategies that might possibly increase your chances of keeping your home.
So, if you want to keep your marital home in your divorce, this might be a good place for you to start.
To get your copy of my book, Divorce House Sense®: How To Keep Your Martial Home So You Can Move On, Not Out®, please go to – https://DivorceHouseSense.com/
