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Divorce and the Family Home – Keep it or Sell it?
Angel J. Berbarie | June 27, 2016
In a divorce action, one of the most difficult financial issues you may face is whether to keep or sell the family home. This decision is also one of the most emotionally charged issues because continuing to live in the family home is comforting and represents security and stability for the children during the stressful time of the dissolving of the marriage. If you find yourself faced with having to make a decision about what to do with the family home in a divorce suit, our Dallas divorce lawyers recommend asking yourself the following questions before making a decision:
1. What is the current equity in the home?
Before deciding what to do with the family home, it is important to know how much equity is in the home. The equity in a home is determined by finding out the fair market value of the home, less the amount of any debt owed on the home such as mortgages and liens. If you and your spouse agree on the current value of the home, then there is no need for a formal appraisal. However, if the two of you cannot agree on the value, then you will need to retain an expert to appraise the home.
2. Can you afford to own the home after the divorce?
If you are considering trying to keep the family home in the divorce, then it is important that you know how much it cost to own the home on a monthly basis. You need to determine the amount of the mortgage, taxes, insurance, and HOA fees that you will be required to pay. You also need to have a good understanding of the average monthly cost of maintaining and running the home. Such costs include not only the utilities but also lawn care, security system, internet/cable costs, pool service, exterminator, repairs and regular maintenance on the home to keep it in good condition. If you cannot afford to keep the home in good repair, then in the end it will decrease in value and possibly make it more difficult to sell in the future. Also, you need to consider what you are giving up to keep the house. Are you giving up vacations with your children or having the money for small splurges for yourself? In the end, keeping the family home is not in your best interest, both financially and emotionally, if you cannot afford it. The better decision may be to let go of a house you cannot afford and move on to a home that you can.
3. What assets are you giving up to keep the home?
If you keep the home, then you will most likely be giving up your interest in other assets to do so. Consideration of the other assets that you are giving up to keep the home is critical in making the decision whether to do so or not. For example, are you trading your interest in retirement assets to keep the house? If so, stop and ask yourself if you will have the opportunity to re-build such assets before you retire. If not, then you should assess how the decision to keep the house affects your future and whether you can afford to keep the house and retire.
4. What are the tax consequences related to keeping and selling the home?
When making the decision as to whether to keep the family home in the divorce action or whether to sell the home while co-owning it with your spouse, you need to consider the possible tax consequences of your decision. For example, if the family home is sold now or in the future, it may be subject to a capital gains tax. If so, then if you keep the family home in the divorce action and sell it in the future, you may be facing a greater capital gains tax than if you had sold the home while you continued to co-own it with your spouse. To fully understand all of the tax issues that should be considered in making the decision as to whether to keep or sell a home, your Dallas divorce attorney may recommend that you consult with a CPA to advise you.
5. Can you afford to refinance the mortgage in your name?
If you want to be awarded the home in the divorce and there is a mortgage on the home, then it is likely that your spouse will want his/her name removed from the mortgage. In this situation, you will need to be able to refinance the mortgage solely in your name based on your income, unless you have someone that will co-sign on the mortgage with you. It is advisable that you consult with lenders to determine if you will be able to refinance the mortgage in your name.
There is certainly a distinction between a home and a house. Home is where the heart is, there’s no place like home; home is where you gather for the holidays to spend time with family, and in the case of a divorce, a home is where you can make your fresh start and build new memories, for you and your children. A house is only sticks, brick and mortar. If you are faced with the decision of holding on to a house that is going to leave you financially stressed and moving on to a new home, then welcome the opportunity to start a new home.