Divorce can be time-consuming and stressful, even when both parties are in full agreement. Legal proceedings can interfere with work, the increased tension can take a toll on friendships, and fear of the unknown can wreak havoc on emotions.
For those with children, there are additional considerations that raise the stakes and make every decision even more important. It can be a challenge to achieve an outcome that works well for everyone, but the right team of compassionate professionals can make a world of difference.
If you don’t decide, the judge will. Virtually all divorces involve a division of property. Whether the assets are substantial or relatively small, the memories make it difficult, if not impossible, to divide them fairly. Who gets the dog? Who gets to keep the crystal bowl from the wedding? Some things simply can’t be divided. In these situations, it is best to set emotion aside and think rationally. Divorcing couples who can make these decisions together will save money and have a more amicable relationship.
Often, the family home is the largest and most valuable asset a married couple owns. Just like the dog, the home cannot be divided. Regardless of any emotional attachment the parties may have to the property, it is crucial that they think logically when deciding how to deal with it. This single decision can have a dramatic impact on both spouses’ finances, for years to come.
Does either spouse want to keep the house? If so, can they comfortably afford it on a single income? Can they afford the monthly mortgage payment, insurance and taxes? When an air conditioner goes out, can they afford to get it fixed? Will they be able to maintain the home, take care of the yard, and make needed improvements?
Have to sell? You’re not alone. After taking all this into account, it is common for couples in divorce to conclude they have no choice but to sell. Rather than spending time and resources fighting over who gets to live there or how much equity is in the home, it simply makes more sense to sell the house and divide the net proceeds.
In situations where one spouse wants the home and has the resources to keep it, there is still the issue of dividing the equity as part of the divorce settlement. This will require a determination of fair market value (equity is the difference between fair market value and the outstanding balance on any loans secured by the home).
Thinking of fighting? Think again. In a contested divorce, the mediator or judge will provide instructions specifying what documentation they will accept as proof of fair market value. Some will insist on one or more appraisals. Others might accept a comparative market analysis (“CMA”) from a qualified realtor, but even the choice of a realtor can be a point of contention between spouses who struggle to work together. Imagine how long it might take to determine the home’s value when one side wants a higher value and the other side wants it as low as possible. The legal expenses can run into the thousands of dollars for the time spent arguing about this one issue. This is money that neither spouse will get, when the divorce is finalized. It is easy to see why working together is better for both sides, in the long run.
What about your credit score? Another important factor to consider is the impact the divorce will have on the credit scores of both spouses. Just closing joint credit cards and opening new accounts can do enough damage. Imagine what would happen if the spouse who keeps the house can’t qualify to refinance the mortgage on a single income. When the divorce is finalized, both names will remain on the mortgage, even though one spouse no longer lives in the home. The divorce decree may state that the spouse who gets the house has to pay the mortgage, but the divorce decree is powerless to change the terms on an existing lien. Both spouses will remain liable for the loan payments until the loan is refinanced. Any late or missed payments will affect the credit scores of both parties.
Can you afford to be out of the market? In the above situation, the departing spouse no longer has an ownership interest in the marital home. In addition, remaining on the old mortgage will likely make it difficult to qualify for a mortgage to purchase a different home. One party will continue to participate in the real estate market, while the other is forced to rent.
NOTE: These are my personal thoughts and should not be considered legal or investment advice.
Don Carlson, GRI
Keller Williams North Country