Should I keep my house in a divorce?
I'm in the midst of a divorce. My husband has no interest in keeping the house, but I'd like to stay here with my two twin daughters until they graduate middle school. We have no mortgage. I also have another asset that I can give my husband, which is worth about what the house is worth. Is this a smart financial decision?
In my opinion, it may not be the best financial decision, but of course it depends on a number of details surrounding your divorce.
Would your husband be willing to allow you to stay in the house until the twin daughters have graduated, and then when you sell it, half of the proceeds would go to him at that time?
The other asset that you referred to - did you mean that was worth about half of the value of the house? You wouldn't want to give him the full value, since half is yours.
You may want to consider the taxability of the other asset that you would give to him in lieu of the house, is it taxable? Will the sale of the house fall under the exclusion level of $250,000 above the cost basis as a single taxpayer? Also, what other assets would you be forgoing by doing this?
What type of other assets would you have access to in the event of an emergency? How about sources of income between now and when they graduate middle school - will giving the the other asset put you at risk in other ways?
Just a few things to consider in making your final decision.
We can't determine if this is the best decision for you based on limited information. However, here are some things to consider in making your decision:
- Can you afford to carry the house financially on your own? You mentioned that you have no mortgage and you have other assets to trade for equity in the house. That's good, because many find that they either cannot qualify for a mortgage on their own or have no assets to trade.
- What are you giving up to keep the house? Are you sacrificing your retirement security? Your emergency fund? Taking on more debt? It's okay to choose one thing over another, but try to avoid having most of your assets "tied up" in the home.
- Are there any tax implications? Do you expect a taxable capital gain (above and beyond the exclusion) down the road when you sell?
A Certified Divorce Financial Analyst (CDFA) can help you compare the financial implications of multiple scenarios (ie. keep the house vs. sell the house), so you can make the most informed decision.
Keeping a home after a divorce requires thought about a variety of issues. Although there is no mortgage, there are other personal and financial issues that may come into play. Perhaps this is the easiest thing to do at this time in order to keep your daughters comfortable. This is completely understandable.
However, there are other financial issues to think about. For example, if you sold the house with your husband, you can jointly exclude $500,000 of capital gain. As a single person, you can only exclude $250,000 of gain. Any gain over this amount is taxable.
Although there is no mortgage, there are the costs associated with your home. Taxes, insurance and, of course, your standard upkeep.
Therefore, I recommend that you sit down and make a list. Why stay? Why move?
Additionally, think about how long you want to remain in your home - it seems as if it will only be a few years. Think about your income and what it would would take to maintain your home the way you’d like to. And, what will the costs be associated with getting your home ready to sell after you daughters graduate middle school? Will your tax base change with the change in ownership? How is property appreciating in your neighborhood? And, what are some of the personal struggles and opportunities related to moving?
This is both an emotional and financial decision. Weigh all aspects. Definitely seek assistance from someone who can help you crunch the numbers.
The best to you and your family.
Whether or not you should keep the house is very personal and something I do help clients with every day. Having been divorced myself and trying to keep it in order to give children continuity is a mistake I did make.
Have you done income projections for at least the next 10 years to see if your income, assets, etc. can support your living expenses with an increase due to inflation?
Are you still saving for retirement? I have seen too many divorced women in their 60s whose children are gone, and they have no retirement savings. You still need to look after yourself.
What have you planned with your soon-to-be Ex (STBX) for the education of your children? This is a major expense that you will be faced with in less than 10 years, what is your plan there?
Are you getting Alimony or Child support? Do you have life insurance on your STBX in case anything happens to him? How about disability insurance in case his income drops due to a disability?
Will you be able to establish a Home Equity line of credit in your name in case something happens to the home and you need to do major repairs that might not be in your budget since you are possibly giving up another "liquid" asset to your STBX?
Can you afford the taxes and insurance on the property with your current income?
There are so many moving parts, it is difficult to answer the question without more information.
There are many considerations and this is exactly what a Certified Divorce Financial Planner (CDFA) does. They are individuals who are financial advisors, but also have additional certification, background checks, passed 4 proctored exams and have continuing education requirements. You can find one at InstituteDFA.com, the non-profit organization of CDFAs.
I like the sound of you’re still the “midst of a divorce”, which means you may still have many planning opportunities. Working with many divorced women, I have seen first-hand what our advice could have made an impact if we (CDFA®) got involved in the process of negotiation. Once the dust settles, unless the fraud is discovered, there’s not a lot anyone can do anymore.
So, back to your question, it’s about the house or another equivalent valued asset. Have a free clear house is tempting, but remember you must pay the annual property tax and maintenance cost. Unless you have enough income to cover those expenditures, even the paid-up house can be expensive in the future. Also, you may have to consider the capital gain cost. Before you divorce, you can exclude up to $500k capital gain v.s. only $250 post-divorce as a single.
The way I look at it—this could be a time for some more negotiation, so find a CDFA® or CFP® on your side to better guide you. Best!