Divorce – Moving, Money, and Mortgages
Divorce can be a time of tremendous turmoil and upheaval. So many questions need answers and many decisions need to be made especially when it comes time to talk about the family home. Do any of these sound familiar?
o Do we sell the house and split the equity?
o Should one of us stay and the other go?
o If I am the one to go, how do I get my fair share?
o Can I afford to keep the house?
o How do I qualify for another mortgage on only one income?
These are common issues during divorce. Knowing what to do and where to find the answers can sometimes be challenging. If possible, speak with your spouse to iron out the emotional issue of your home. Then consult with your Attorney and Certified Divorce Financial Analyst to make sure that you are getting your fair share no matter what you decide.
There can be many factors that go into the valuing of the home for tax purposes, especially if you have been married for many years and have owned other residences as tremendous tax reforms have taken place since 1997. However, the old rules apply to properties owned before then. It is imperative that you to consult with a financial advisor who is versed in these matters before you finalize your divorce because relatively minor changes in the tax laws can significantly affect the tax results on the sale of your home, sometimes creating tremendous unforeseen tax bills.
If you have children, it may be helpful emotionally if they have a familiar place to come home to during, and for some time after, the divorce is final.
In considering your decision, start by looking at the monthly costs involved and see if it makes sense financially. Remember that you will need to add the total costs of the mortgage, taxes, insurance, homeowner’s dues and maintenance when doing your calculations. Many people forget to factor in the cost of a possible new roof a couple of years down the line or other household repairs that may be needed. This can be a costly mistake in the long run.
Since the home is an emotional asset, many times one spouse will give up other – sometimes times better – assets in order to keep the home without considering the true costs associated with keeping it. Unfortunately, that can lead to foreclosure if the spouse is no longer able to afford it after the divorce.
Also consider that your household income will likely be decreasing while your overall expenses may be increasing if you are subject to a court order for support. The decision regarding the family home is wrought with many issues.
If you decide to split the equity in the home you have several choices – you can sell it and share the proceeds (after the calculations regarding commissions, sales expenses and basis are factored in); you can refinance and pay your spouse with proceeds from cashing out some of the equity in the home; or you can use other assets such as cash, investments and retirement funds to “buy them out.” This decision can be extremely complicated and should not be done without consulting with your financial professional.
Getting a new mortgage can prove challenging, especially with one income. However, if you have good credit and income it should not be a problem. Many times child support and alimony are viewed as stable income if you have been receiving it for at least three months and it is projected to continue for at least three years.
Be aware that if your name is still on a mortgage you will be held liable for it if your ex defaults, even if the divorce decree states that you are no longer responsible. Divorce courts do not have the power to wipe out your obligations to credit card or mortgage companies. Make sure that your ex-spouse makes good on any debts that still have your name attached. A better strategy is to pay off all joint debts before the divorce is finalized.
A good mortgage broker can provide information about how to contact your mortgage company and request a “Qualifying Name Delete Assumption.” This process allows the current loan to remain unchanged, but relieves the non-occupying spouse of further liability.
Beware of purchasing a new home before the divorce is final. Any property purchased while still married will be considered marital property and you would have to qualify with all of the debt from the current home. This can be tricky and may ultimately land you in a trick bag. Mind your money when considering your next move.
Lisa C. Decker is an expert in divorce financial matters. As a discreet problem-solver and trusted advisor she utilizes cutting edge tools and industry insight to guide her clients during one of life’s most difficult challenges by helping them to “Divorce Your Spouse, Not Your Assets.” Visit Lisa at http://www.DivorceFinancialInsight.com for details and get her FREE Audio Series – “5 Things You Must Know BEFORE You Sign on the Dotted Line!”