After a divorce, your home may be a sanctuary or a ball and chain.
If you start down the difficult path of divorce, many of the decisions involve how to divide the assets. And one of the more difficult and significant assets in many marriages is the house. Too often we see one spouse (frequently the woman) insist on keeping the marital home and suffering financially as a result.
Holding on to the house is a complicated and difficult decision that involves emotions as well as financial planning.
Holding on to the house is a complicated and difficult decision that involves emotions as well as financial planning. While remaining in your home provides benefits including continuity and stability, it poses challenges as well. Here are a few things to consider if you are having to make the choice.
Can you afford it? Many couples purchase a home they can afford together. After divorce, that level of income will have to support two households. Whoever keeps the house will have to afford it alone. Most divorce agreements that involve one partner keeping the home require that person obtain a new mortgage in their name alone.
Consider the cost of upkeep. Once you qualify for the mortgage, keep in mind that there are many other expenses involved in maintaining a home. As you project your budget post-divorce, remember to include utility bills, maintenance, landscaping, snowplowing, and all of the other expenses that will be required.
There is an opportunity cost. One common scenario is that the couple trades off the equity in the home for a larger share of retirement savings. One spouse ends up with most of the retirement savings, a source for future income, while one spouse gets the house, an asset that doesn’t easily generate income but certain comes with a host of expenses! The spouse who retains the home will still need to provide for their own retirement, meaning, not just having the expenses to keep the home, but having to save more to catch up on giving up most of the investment savings in the divorce settlement.
If you are trying to decide whether to keep the home, here are couple of possibilities to consider.
What does the home represent? Is it the house you want to hold onto or is it attributes you could find elsewhere? It might be the school district. It may be proximity to family and friends. It may be the convenient commute to work. Digging down into what you really want may enable you to find an alternative that does not require trade-offs as large.
Consider holding it together. If the reason to keep a home is to maintain a presence in a school district or to have the room for a family and those kids will be on their own or off to college in a few years, you might just hold off selling for a couple years. If your breakup is reasonably amicable, you could also consider maintaining joint ownership until you are in a position to move into a smaller place or in a different location.
Remember, achieving financial independence is about having a comfortable income for your lifetime with work being something you do because you want to, not because you have to. The decision to keep the house after divorce is a big one. Before making your decision, work with your advisor to understand the long-term cost of “buying out” your partners equity and do a financial plan to make sure keeping the house won’t stand in your way of achieving financial independence.