This is the first episode of a four-part series about what happens to the marital home during a divorce.
Like everything else during a divorce, this issue will require you to think carefully and decide what makes the most financial sense for your situation. Financial decisions that you make during your divorce can affect you for years to come (including your decisions about what to do with the marital home).
The marital home can often be an emotional topic. You may have a lot of good memories about it, and your kids may have been raised there. Many of my clients want to keep their house, even if they do not understand all the financial implications of doing so. You should consider the full financial picture before deciding what you want to do with the house.
When going through a divorce, you have three options regarding your house:
- Keep the house (and the mortgage).
- Transfer the house and the mortgage to yourself or your spouse.
- Sell the house.
This episode focuses on the financial issues you should consider if you are thinking about keeping the home. There are a lot of expenses that come with this option (beyond just the mortgage), and it is important to consider all those expenses when determining if you can afford to keep the home. Sometimes, keeping the home turns out to be a mistake, and it can even result in bankruptcy.
Here are five key expenses tied to keeping your home, which you need to factor in when deciding about keeping your home:
Most people have a fixed-rate mortgage, so your mortgage payment will not change. If you have a floating-rate mortgage, you need to know what it could become in the future if interest rates go up. Some people may have a balloon payment near the end of your mortgage. In that case, it is important to have those figures when deciding to stay in the home.
2) Property taxes
These taxes may be included in your mortgage payment. They can change, depending on where you live. Your county may reassess your property and increase your taxes. You should know what those rates could potentially be, and how they would impact you.
It may also be included in your mortgage payment. If not, you will need to know what that ongoing cost is.
4) Repairs and maintenance
Get a home inspection to find out which repairs your house needs. Be sure to factor in regular maintenance costs and unexpected repairs (for example, a sudden plumbing problem). You should have included estimates for household maintenance in your financial affidavit, but if not, do so now. A rough estimate of repairs and maintenance is 1% of the value of the home each year.
Are you going to need to replace major appliances? Do you have rooms that need renovations, or are you planning on making other additions to the house? These expenses need to be factored into your budget.
Can you afford to keep your house, given these expenses? If you can, you will have to decide whether or not it is worth it. What are you sacrificing to keep your home? Be sure to listen to the next three episodes in this series, and seriously consider whether keeping your home is the best decision for you in the long term.