One of the biggest questions people ask in a divorce is, “What will we do with our home?” Will you sell it, or will one of you keep it? And if one keeps it, how can that be fair to the other partner?
You’ll have several different options, each with its own pros and cons. By working with a mediator or your lawyers, hopefully you can reach a decision agreeable to both of you.
Selling the Home
The simplest solution during a divorce is often to sell the home and divide the proceeds. This allows each of you to start fresh with a home you actually chose yourself. After all, the home you had before the divorce was probably a compromise between what each of you wanted and needed. If you don’t have to be near your former spouse’s job, can you get a nicer house for less? If the children will live most of the time in one home, can the other spouse get a smaller home in a better location?
On the other hand, you may have reasons for wanting to keep the home. For instance, keeping the children in the family home might allow them stability, especially if moving would require a change in schools. Selling one home and buying another does also come with its own costs.
Try to avoid sentiment and ask yourself: does this house actually make financial sense after the divorce? Can you pay the mortgage on a smaller income?
Buying Out One Partner
Another possibility is for one partner to get the home, while the other receives an equal share in other assets, like cash or retirement accounts. You might think, “But we have no assets equal to our $200,000 home!” But, unless you’ve paid off your mortgage, the full value of your home doesn’t count as an asset, only your equity. If you’ve paid off, for instance, $20,000 of your mortgage, while your house has appreciated by $30,000, you have $50,000 in equity. If your spouse is owed half of that equity, you only need to find $25,000 in other assets to offset it.
If you don’t own any large assets except for the home, you’ll need to refinance it. With a cash-out refinance, you can extract your spouse’s share of the equity and give it to them. The new mortgage can be in your name. This is a good option if you have a significant amount of equity and no other assets to use. But you will need to be able to qualify for the new mortgage with only your income—including any alimony or child support you will receive.
In some cases, the court may allow one spouse to stay in the marital home after the divorce for a period of time even without owning it. This is most common when there are children living in the home, but you can’t afford to buy your spouse out. The divorce order will assign who is responsible for paying the mortgage.
Don’t Fight Over the Home in the Divorce
Whenever possible, you and your former partner should negotiate together about dividing assets. You’ll always pay more if you pour money into lawyers’ pockets to fight about it—and often wind up with a deal that’s no better. If you can’t have a civil discussion about it, a mediator can help.
However, some divorces are too contentious to manage this way. In that case, try to keep the long view in mind as you undergo the legal process. The judge may order the house sold and the proceeds divided. That might be disappointing, but it’s also your chance for a fresh start. Your next home can be all yours.
A New Financial Start After Divorce
For many, a divorce is a new beginning. You may never have managed all your finances on your own, or not for decades. That makes it a good time to seek out some trustworthy advice that can set you up for success. We can connect you with a financial advisor experienced in helping people after divorce. All it takes is a quick phone call.