DIVORCE: What You Need to Know About Your House, Your
Mortgage and Taxes
?Once you know how a divorce affects your home, mortgage
and taxes, critical decisions are easier. Neutral, third party information can
help you make logical, rather than emotional decisions.?
How to 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, straight-forward, specific answers. Once you know
how a divorce affects your home, your mortgage and taxes, critical decisions are
easier. Neutral, third party information can help you make logical, rather than
emotional decisions.
Probably the first decision is whether you want to continue to living in
the house. Will the familiar surroundings bring you comfort and emotional
security, or unpleasant memories? Do you want to minimize change by staying
where you are, or sell your home and move to a new place that offers a new
start?
Only you can answer these questions, but there will almost certainly be
some financial repercussions to your decision process. What can you afford? Can
you manage the old house on your new budget? Is refinancing possible? Or is it
better to sell and buy? How much house can you buy on your new budget? The
purpose of this report is to help you ask the right questions so you can make
informed decisions that will be right for your situation.
4 OPTIONS
You have 4 basic housing options when in the midst of a divorce:
- Sell the house now and divide up the proceeds.
- Buy out your spouse.
- Have your spouse buy you out.
- Retain your ownership.
It?s important for you to understand the financial implications of each of
these scenarios.
1. Sell the House Now and Divide Up the Proceeds
Your primary consideration under these circumstances is to maximize your home?s
selling price. We can help you avoid the common mistakes most homeowners make
which compromise this outcome. As you work to get your financial affairs in
order, 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.
2. 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.
3. 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 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.
4. 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.
When You Decide to Sell
I f 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.
When You Buy Your Next Home
Use the proceeds from your previous home or buy out to determine an
affordable price range for your next home. Maintain a clear focus on getting 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.
