How to Avoid Costly Housing Mistakes During and After a Divorce: What You Need to Know About Your House, Your Home Loan and Taxes

Divorce is a tough situation that can bring up emotional and financial issues that need to be resolved. One of the most important decisions is what to do about the house. It's essential to have neutral, third-party information to make logical, rather than emotional, decisions.

The First Decision: To Stay or Sell

The first decision to make is whether you want to stay in the house or sell it. You need to consider if the familiar surroundings will bring you comfort and emotional security or if it will bring back unpleasant memories. You also need to decide whether you want to stay where you are to minimize change or sell your home and move to a new place that offers a fresh start.

Financial Repercussions

Your decision will have financial repercussions, and it's crucial to understand what you can afford. Can you manage the old house on your new budget? Is refinancing possible, or is it better to sell and buy? The purpose of this report is to help you ask the right questions so that you can make informed decisions that are right for your situation.

Four Options

There are four basic housing options during a divorce:

  1. Sell the house now and divide up the proceeds.
  2. Buy out your spouse.
  3. Have your spouse buy you out.
  4. Retain your ownership.

It's important to understand the financial implications of each scenario.

Sell the House Now and Divide Up the Proceeds

The primary consideration in this option is to maximize the selling price of the home. Make sure you understand what your net proceeds will be after selling expenses, and determine what your split of the proceeds will be. The split may not be 50/50, depending on the divorce settlement, the source of the original down payment, and the legislative property laws in your area.

Buy Out Your Spouse

If you want to keep the house, you need to determine how you'll 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, refinancing on your own might be a challenge.

Have Your Spouse Buy You Out

If you are 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 refinanced, 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.

Retain Joint Ownership

Some couples postpone a financial decision with respect to the home and retain joint ownership for a period of time, even though only one spouse lives there. While this temporary situation means you have no immediate worries in this regard, keep your eye on tax considerations that may change from the time of your divorce to the time of the ultimate sale.

Selling the Home

If you and your spouse decide to sell your home, it's important to work together through a professional to maximize your return. Both of you should understand and sign the listing contract and be active in the ultimate negotiations.

Buying Your Next Home

Use the proceeds from your previous home or buy out to determine an affordable price range for your next home. Focus on finding the right home to suit your new situation. You may wish to review with an agent who offers a house-hunting service to help find a home that matches your new home buying criteria.