Avoid Costly Housing Mistakes in the Midst Of a Divorce

Avoid Costly Housing Mistakes in the Midst Of a Divorce

Avoid Costly Housing Mistakes in the Midst Of a Divorce

Divorce is a tough situation which opens up many emotional and financial issues to be solved. One of the most important decisions is what to do about the house. In the midst of the heavy emotional and financial turmoil, what you need most is some non-emotional, straightforward, specific answers. Once you know how a divorce affects your home, your mortgage and taxes, critical decisions are easier.

You have 4 basic options when in the midst of a divorce. It’s important  to understand the financial implications of each scenarios.

❶ Sell the House Now and Divide Up the Proceeds - Your primary consideration under these circumstances is to maximize your home’s selling price. Make sure you understand what your net proceeds will be - i.e. after selling expenses, and after determining what your split of the proceeds will be. Note that the split may not be 50/50, but rather may depend on the divorce settlement, the source of the
original down-payment, and the legislative property laws in your area.

❷ Buy Out Your Spouse - If you intend to keep the house yourself, you’ll have 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.

❸ Have Your Spouse Buy You Out - If you are the one who is leaving, you have the opportunity to start again in new surroundings
with cash in your pocket. However, be aware that if the home loan is not refinanced, you and your spouse as original co-signers are still 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.It can also effect your credit should the spouse decide to default.

❹ Retain Joint Ownership - Some divorcing 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 which may change from the time of your divorce to the time of the ultimate sale.

If you and your spouse decide to sell your home, it will be important to work together through a professional to maximize your return. Differences aside, you both should be present when a listing contract is put together. Both of you should understand and sign this contract, and both should be active in the ultimate negotiations.

This information is not intended to replace individualized legal advice. It is recommended to seek professional legal counsel for your legal issue.