Divorce and Your House - Splitting Your Assets
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Wow, what a tough subject to discuss...
For those of you that have never gone through the heartache and turmoil of a divorce, no explanation will suffice. For those of you that have "been there" no explanation is necessary.
Divorce affects everything in our life, whether we like it or not, especially if you have children. None of the decisions that you make during this time will be easy, but many decisions will be required of both you and your spouse.
I have been In the field of finance for over 20 years. I've worked for both Mortgage Lenders and Brokers, and have also been Real Estate Licensed. I have seen many fine people forced to work through these difficult issues.
One of the most difficult aspects of a divorce can be the splitting of your combined assets. This includes your home. Understanding your options and their potential consequences (good or bad), will help a great deal in arriving at the best solution for your circumstances.
First you need to decide who if anyone wants (or needs) to live in the house. Many times neither party wishes to stay in the home due unpleasant memories. Other times, the court may decide which party (if any) will stay in the house.
Here are the 4 fundamental choices as it relates to your home and mortgage. It is critical to fully understand the ramifications of each of these 4 choices, before making a decision.
- Sell the house and split the profits
- Buy the house from your spouse
- Sell your equity in the house to your spouse
- Maintain joint ownership
Sell the home and split the profits
The primary goal is to sell the home as quickly as possible for as much as you can reasonably get, considering your circumstances. And you MUST consider your circumstances. Here are a couple of reasons why.
If it takes an extended period of time to sell, will you both live there, even though you are going through or have just completed a divorce? That may make sense when you see your finances on paper, but it is very hard to do in the real world.
There is usually an extremely negative atmosphere in a home where two people wish to be apart. Especially after the attorneys "get through with you". If you think you had problems before court, just wait until the attorneys and judge get involved. If you do choose to sell the home and split the profits, it's probably wise for one of you to make other temporary arrangements while the house is for sale.
This also means that you should price the home reasonably, not expecting top dollar unless you can financially and emotionally afford to wait for a great offer on your home. Most people aren't in a position to take their time with the sale.
Remember that in the end the profits may not be equally divided. Factors that may influence the split include the terms of your settlement, the original source of the down payment, and the property laws in your area.
Buy the house from your spouse
Consider the income of your new household. Are you dropping from two salaries to one? Are you able to afford a similar monthly mortgage payment by yourself? If you wish to maintain the house as your primary residence, these factors must be addressed. Also, if the original mortgage is in both of your names, then you face the challenge of refinancing on your own merit. That means your credit history, job history and debt to income ratio.
Sell your equity to your spouse
This should provide you with funds to find another place to live. How much, will depend on the equity in your home after real estate commissions. There may also be tax implications that you will need to be aware of.
Make absolutely certain that you DO NOT remain on title if you have been bought out. You need to be taken off of the old mortgage and title if you were on it. If that isn't done you may remain liable for any late payments (ruining your credit), back taxes etc. (debt) that your ex spouse may incur.
Maintain joint ownership
You may choose to delay the decision regarding the ultimate possession of the home for a time, with one of you remaining as a resident. Although this may have no short-term financial ramifications, make sur to consider the potential tax consequences. From the original time of the divorce to the final disposition of the home, the tax obligations and deductions of the home can change.
Also be aware that in some states, in some circumstances, that your spouse may be able to obtain a 2nd mortgage on the home without you being aware of it!
If you found this article to be helpful, please forward it to other friends and family that may need the same information. Splitting assets properly and equitably can be a very difficult and emotional task. I wish you well in this endeavor.
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