Can I keep my home?
If you are hoping to stay in the house, there are a lot of questions that need to be resolved immediately.
Can you afford to make the mortgage payments (if any), or is the house paid off?
First and foremost, if there is a mortgage balance on the house, we need to find out if you can qualify to refinance. Qualifying with one income source may be challenging, so it is important to work with a lender who specializes in divorce. I can make that connection for you. Often, spousal support may involve one spouse paying the mortgage for the other spouse but determining that amount will take some time to determine. If you will not be receiving spousal support, you'll need to earn enough income to continue making the mortgage payments. To do that, you'll need a secure job and sufficient wages or salary.
Can you afford to continue the other costs of upkeep, such as insurance, taxes, and repairs?
We need to determine your total monthly expenses regarding the house and consider whether your income will be sufficient. Remember that property taxes can be extremely high, and regular maintenance and repairs will be necessary. I will conduct after-tax analysis to determine if you could, and more importantly, should, keep the home.
Do you have the financial ability to buy out your spouse in return for keeping the house?
Often, divorcing spouses are forced to compromise and trade various assets. For example, one spouse may want the house, while the other might keep the pension, retirement accounts, or other investment accounts. This isn't always the case, but it may be the only way to reach an equitable and amicable agreement.
Do you have any children?
If you have young children, you are focused on what is best for them. You may decide that keeping them at the home is important. If a buyout is not an option or a desirable scenario, there are some common arrangements, and some uncommon arrangements, we can explore:
We can find a ratio to share the mortgage and retain ownership of the home that is workable for each of you. This may be for a finite period, such as until the kids ae in junior high or high school, or indefinite.
One spouse could have a schedule over which to buyout the other. This could be over several years if both parties are agreeable to it.
“Nesting”, or “birdnesting”, is when the kids stay at the family home, and the parents alternate staying with them. Sometimes the divorced couple will buy or rent a small place nearby, or they can stay with friends or a significant other.
If you have the space, you might even consider building an Accessory Dwelling Unit (ADU). You can use it for either a nesting arrangement as above, or to create an additional revenue stream that one spouse can use to qualify for refinancing or pay for the mortgage.
These arrangements are probably better alternatives to allowing the court system to decide. When a couple has very young children, a judge will often award the family home to the custodial parent, who often turns out to be the wife. A judge will place great importance on the welfare and happiness of the children and may determine the house is a better environment than an apartment. Sometimes the trading of assets simply isn't necessary. For example, if one spouse is a stay-at-home parent with young children and the other spouse earns a good living, a judge may award the house to the homemaker, have the working spouse pay spousal and child support, and award part of the pension to both parties. Such an arrangement may be more likely in a marriage of long duration.
What are the potential tax liabilities?
Transactions between spouses incident to a divorce aren't taxable. Nevertheless, if one spouse becomes sole owner of the family house pursuant to a divorce settlement and later sells it, the entire capital gain tax liability will be his or hers alone. Nevertheless, there is always the possibility of using the $250,000 capital gain tax exclusion, or $500,000 if the ownership was shared and met certain criteria (which we will discuss in detail if that situation arises).