If you’ve ever owned a house that you love, you understand on a gut level that your house is more than a bunch of bricks and shingles. It’s more than just a place to live. Your house is your home. It represents stability, security, and status. It’s probably also one of the biggest assets you have. It’s no wonder then that so many couples do battle over who gets the house in a divorce.
But should they?
Why Does Keeping the House in a Divorce Matter So Much?
Different people have different reasons for wanting to be the one who gets the house in a divorce.
Parents often want to keep the house for their kids. They don’t want their kids to be uprooted at the same time that their family is falling apart. Or they want to make sure they stay in the same school district so that their kids can stay in the same schools.
Spouses without high-paying jobs often want to keep the house because they know that they probably won’t be able to buy a home on their own after a divorce. They wouldn’t qualify for a mortgage. So keeping the marital home may be the only way they can realistically own a home.
Some people want to keep their house because of its financial value. If their house is unique or is in a super desirable area, they may assume it will increase in value. So they want to keep it as an asset. (Although, before you make that assumption, remember what happened in 2008!)
Still other people want to keep their house for less tangible reasons. Their house may be filled with happy memories. It may be in a neighborhood where they have a lot of friends. Or, if they’ve put a lot of work into their house, they may think of it as “their baby.” Letting go of that baby can be incredibly hard.
No reason for keeping the house in a divorce is necessarily right or wrong. No one reason is better or worse than another.
But, no matter what your reason for wanting to keep the house may be, before you make that decision, you’ve got to ask yourself some important questions.
Asking the Right Questions
Making good decisions starts with asking the right questions.
Most divorcing people assume that the right question for them to ask is “Who gets the house in a divorce?”
Asking who gets the house in a divorce locks you into an “either/or” decision. Either you will get the house or your spouse will. There are no other choices.
“Either/or” decisions create winners and losers. If you get the house, you “win.” If you don’t get the house, you “lose.” Add to that the fact that so many people have so much emotion tied to their house, and you can see why framing the question in a way that automatically creates a winner and a loser makes deciding that question way more difficult.
Instead of asking the question that way, then, you might want to ask a different question. For example, you may want to ask, “What can we do with the house in our divorce?” Or, “What are our options regarding the house?”
Asking the question in that way opens you up to several different options.
- You keep the house;
- Your spouse keeps the house;
- You sell the house and split the proceeds;
- You both keep the house for a certain period of time and then sell it; or
- You both keep the house for a certain period of time, then one person buys the other out.
Once you understand all of your options, then you’re in a position to ask yourself the right questions that will help you make a better decision.
5 Questions to ask BEFORE You Decide Who Gets the House in a Divorce
1. What’s the Marital Value of the House?
To determine the marital value of your house, you need to figure out two things:
A. The overall value of the house; and
B. The marital portion of that value.
For divorce purposes, the value of your house is the amount of equity you have in it. That is, it’s the amount you could sell your house for minus the mortgage and any home equity loan you may have on it.
The MARITAL value of the house is the amount of equity you have acquired in the house since the date of your marriage.
While both of those calculations seem straightforward enough, they can both be wickedly complicated.
Let’s start by considering the fair market value of your house.
A. Determining the Value of Your House
To know how much money your house is worth, you need either an appraisal or a market analysis. Both of those are evaluations by a real estate professional (either an appraiser or a realtor) about the value of your home.
Both of those evaluations take into account all the factors that would go into setting a sale price for your home if you were putting it on the market for sale. They consider the age, size and amenities of your home. They consider the condition of your home as well as its location. Both of them also include an analysis of what similar homes in your area have sold for in the recent past.
The problem with both real estate appraisals and simple market analyses is that, in the end, they’re just opinions. They are professional opinions. But they are still just someone’s idea of what your house would be worth IF you were to sell it.
Because they are just opinions, they can be disputed. So, you can get an appraisal that says your house is worth $700,000, and your spouse can get an appraisal that says its worth $1,000,000. That’s a big difference, and it provides you and your spouse with a lot you can fight about.
(NOTE: The only way to know for sure what a house is worth is to sell it. Whatever the highest bidder was willing to pay for your house is ultimately the amount that it was worth.)
B. Determining the Marital Value of Your House
The second thing you can fight about is what the MARITAL value of the house is.
If one of you owned the home before you got married, some portion of the equity in the house may be pre-marital. The same thing may be true if one of you made the down payment on the house with an inheritance or a gift. Both of those may be considered to be non-marital money.
Any pre-marital equity, or non-marital contribution, one person made to the home probably belongs 100% to the person who made it … but maybe not.
If the pre-marital homeowner put their spouse’s name on the house after they were married, maybe s/he “made a gift” to the marriage of their pre-marital equity. Or, if the couple signed a prenuptial agreement, that agreement may say that even the equity that you built up in the home during your marriage belongs to the spouse who owned the home first.
In short, figuring out how much marital value there is in your home can often be as difficult as determining the value of your home. Yet, in order to decide who gets the home in a divorce, you MUST know how much marital equity there is in it.
2. Can I Afford to Keep the House After A Divorce?
Although this is the second question in this list, it is the number one question you MUST ask yourself before you decide whether you should try to get the house in your divorce or not.
Houses are expensive. Not only do you have to pay the mortgage, real estate taxes, insurance, and – if you have a condo or townhouse – your association dues, but you also have to figure in the cost of maintenance and repairs as well.
In short, there are two critical pieces you must consider in determining whether you can afford to keep the house after your divorce:
A. Will your post-divorce budget be enough to make your payments? and
B. Do you have enough assets to cover emergencies?
So, how do you figure out whether your income will be enough to allow you to keep the house? You start by looking at your income AND at your expenses.
A. Will your post-divorce budget be enough to cover your payments?
The standard rule of thumb is that the total amount of your house payments, plus the real estate taxes, and insurance, should not equal more than one third of your income. If they do, you’re probably going to end up being “house poor.” (i.e. you may have enough money to pay for your house, but there won’t be enough left over to pay for much else!)
When figuring out your post-divorce income you can include child support and alimony you receive into your calculation. (If you have to pay child support or alimony, then you need to deduct those payment when figuring out your net post-divorce income.)
But, be careful! Relying on support payments to give you the income you need to pay for your home can be risky.
If your spouse loses his/her job, you’ll probably lose your support payment, too. If your spouse has a history of not paying bills on time, or simply won’t pay YOU on time, that can affect your ability to make your house payments.
Knowing your monthly income alone, though, won’t tell you whether you can afford to keep your house or not. You also need to consider your monthly expenses.
Your post-divorce income has to be big enough to cover more than just your mortgage, taxes and homeowner’s insurance. It also has to cover the costs included in maintaining your house PLUS all your other monthly expenses. Unfortunately, those costs are easy to miscalculate.
If you are getting divorced in June, it is easy to forget to include the cost of cleaning your furnace in your post-divorce budget. It is also easy to forget how much you paid last year for gutter cleaning, snow removal, or lawn care unless you actually dig up your receipts. (And, who has time for that?!)
You also may mistakenly miscalculate the amount of your mortgage payments.
If you’re going to take money out of the house to pay off your spouse for his/her share of the value, remember that doing that will change your mortgage payment. You will likely be paying more because you’ll need a bigger mortgage.
The bottom line is that, if you really want to know if you can afford to keep the house in your divorce, you have to take the time to seriously, honestly, and realistically assess your budget. Then you have to ask yourself one more question:
B. Do you have enough assets to cover emergencies?
When you’re a homeowner, unexpected expenses always arise. The air conditioner breaks. The roof leaks. The water heater explodes.
When those kinds of things happen, you have to have money available to pay to get them fixed. In other words, you need a reserve fund.
How much you need to have in reserve depends upon you, your house, your income and your risk tolerance. If you have a brand new home, chances are good that nothing major will break in the near future. But if your house (or your appliances) are already old, you have to assume that something is going to need to be replaced in the next five years.
Having enough money in reserve to pay for the most expensive thing that could break would be wise. Putting any major unexpected expenses on a credit card could have you paying exorbitant amounts of interest for years to come.
3. If I Keep the House, Can I Refinance the Mortgage?
Another element to factor into your decision about who gets the house in your divorce is your mortgage.
If the mortgage on your house is in your spouse’s name, or it’s in both of your names, and you want to keep the house, then you’ve going to have to refinance the mortgage to get your spouse’s name off it. Otherwise, your spouse would continue to be liable for paying the mortgage even though s/he would no longer own the house.
Understandably, most divorcing spouses aren’t willing to do that – for a lot of reasons.
No matter what your divorce papers say, if you miss a mortgage payment, the mortgage company can go after your spouse for the payment. If you make a payment late, it will affect your spouse’s credit rating.
What’s more your mortgage will stay on your spouse’s credit report until it’s been paid off. Because of that your spouse may not be able to get a mortgage to buy another house until your mortgage has been paid off.
Unfortunately, refinancing your mortgage isn’t always easy.
First, before you can refinance your income must be high enough to pay for that mortgage. Also, many mortgage companies won’t consider the support payments you receive as income until you have received those payments for a certain number of months in a row. That means that you may not be able to refinance your house for many months after your divorce.
That delay can present challenges.
Right now interest rates now are at all-time lows. If interest rates go up before you refinance, that rate increase can jack up your monthly payments. It can also cause you to have to pay tens of thousands of dollars more in interest over the life of your loan.
4. What Are The Pros And Cons of Selling Now?
While you may not WANT to sell your house now, in order to make a good decision about what you should do with your house in a divorce, you need to consider what would happen if you did sell.
A. The “Pros:”
- Selling your house ends the debate over what your house was worth. Fighting over anything in your divorce costs time and money. If you sell your house, you end the fight about what it was worth.
- Selling your house eliminates a huge debt for both you and your spouse. It also can give you cash that you can use to pay off other debts, or use as a down payment on a new house.
- When you sell your house, you and your spouse both share in the costs of the sale. If you keep the house and sell it years down the road, you will pay all the expenses from the sale yourself. If your house has appreciated in value a lot, you may also be responsible for paying capital gains taxes on that appreciation.
- If the housing market tanks again, you won’t be left holding the bag with a house that’s worth less than you thought.
On the other hand, selling the house can have its downsides too.
B. The “Cons:”
- Selling now forces you to sell at current market prices. If the value of your house goes up in a few years, you’ll lose out on that gain.
- Selling while you’re going through a divorce may pressure you to sell at a lower price. You don’t want to have to sell your house at fire sale prices. But you also don’t want your divorce to drag on for years. Requiring yourself to sell your house before you divorce incentivizes you to sell your house quickly and maybe too cheaply.
- Selling your house while you’re going through a divorce can be overwhelming. Selling a house is a lot of work. Getting divorced is a lot of work. When you add both of those to a life that was already full with your job and your kids, it’s easy to get overwhelmed. What’s more, with all of the losses that going through a divorce already causes, selling your home can feel like one more loss you don’t need.
- Selling now WILL uproot your kids.
5. What Intangible Factors Do I Need to Consider When Making This Decision?
Most of our discussion so far has revolved around the financial considerations involved in deciding who gets the house in a divorce. The reason is simple.
If getting the house now will cost you money in the long run, you probably shouldn’t keep it. If you don’t have the money to support your house after your divorce, you definitely shouldn’t keep it.
But money isn’t the only thing you need to think about when you’re considering whether to keep the house or not.
Houses have huge sentimental value. They also can be a stabilizing force for both you and your kids. Moving during a divorce can make an already bad situation unbearable, especially if your kids aren’t in a good place right now because of your divorce.
While you don’t want to let your emotions dictate your divorce decisions, ignoring your emotions completely isn’t the answer either. The trick is to take your emotions into account, while not letting them totally run the show.
That means that you need to be realistic and honest about your finances. If the numbers clearly show that you can’t afford to keep the house, you need to pay attention to that. Keeping the house for a year until you get foreclosed on is silly.
On the other hand, if the numbers show that you can afford the house … but barely, then keeping the house is a possibility. At that point, you have the luxury of taking all of the non-financial factors into account before making your final decision.
So How DO you decide Who Gets the House in a Divorce?
Deciding whether to keep the house in your divorce is intensely personal and highly complex. It’s a decision that has as much (or more) to do with emotion as it does with money.
To make the best decision, you need to be realistic and thorough. You absolutely MUST know your facts and figures and consider the financial implications of any decision you should make.
Getting expert advice will help.
Talk to a realtor and find out how much your house is worth. Talk to a mortgage broker and find out whether refinancing your house is possible. Finally, consult with an accountant or a financial planner to find out whether your new payments will be affordable.
Armed with solid financial facts, you will be able to decide whether keeping the house in your divorce is truly your best choice.