The marital home is oftentimes the most valuable asset shared by a couple. For that reason, there are compelling reasons to sell it after a divorce. Among them is the fact that doing so frees up funds that could be put to other uses, such as relocating and buying another place to live.
But for a number of reasons, one of the spouses may prefer to keep the family residence. This can become a source of major conflict between both parties. The spouse who wishes to stay in the house must ask herself whether doing so is financially possible, and if it is, how to make it happen. It will likely entail negotiating with her soon-to-be ex-spouse.
Below, we’ll briefly describe the most common reasons people keep their houses following a divorce. We’ll also discuss the issues you’ll need to consider if you’re thinking about making the same decision.
Common Reasons To Keep The Family Residence
Perhaps the biggest reason divorced couples decide to keep their family residence is because of their children. A divorce can place enormous stress on young kids. Allowing them to continue living in their home provides a measure of consistency that can help minimize the emotional toll. The children can remain enrolled in their schools, which means they’ll see their friends and teachers on a regular basis. If they’re currently involved in organized sports, they’ll be able to continue participating in them.
Another common reason to keep the family home is because one or both spouses feels emotionally invested in it. For example, one of them might have grown up in the house. Or, it may have been the first home the couple purchased after getting married. Such attachments can be difficult to break.
Can You Afford To Keep Your Home?
Prior to deciding to keep the family residence, it’s important to ask yourself whether doing so is even financially viable. Divorce tends to adversely affect the finances of both spouses, particularly in the short run. With a limited budget, will you be able to afford the monthly mortgage payments, property taxes, utilities, and the cost of ongoing maintenance? If major repairs need to be addressed, will you have the funds available to pay for them?
If you determine that the costs of homeownership are too high for your budget, now is the time to look for other living arrangements. That might include renting a place or buying a smaller house, which would presumably have a lower mortgage payment.
Negotiating With Your Spouse
Suppose you want to keep the family home, but your spouse wants to sell it and split the proceeds. This situation does not necessarily need to end in a stalemate. Nor does a divorce court judge or mediator need to get involved. There may be a number of ways to negotiate with your spouse so that both parties’ desires are satisfied.
For example, if you have the funds available, you could offer to buy out your spouse’s financial interest in the property. Keep in mind that when you eventually sell it, you’ll need to pay taxes on any resulting capital gains.
Another option is to give your spouse control of other marital assets that are valued close to his or her interest in the property. Such assets might include vehicles, jewelry, or a vacation home.
Depending on your financial situation and credit, you may be able to qualify for a cash-out refinance. This is a type of refinancing in which the new loan exceeds the outstanding balance of the existing mortgage, liens, and closing costs. The extra loan amount can be used to pay your spouse for his or her portion of the equity.
When You’re Forced To Sell, But Unable To Find A Buyer
Suppose you’re unable to afford the costs of homeownership after your divorce, but have difficulty finding a buyer for your house. What are your options?
The first option is to rent it out. Here, the goal is to minimize the difference between the rental amount and the monthly mortgage payment. Whether that is possible depends largely on market conditions.
If you’re unable to find a tenant willing to pay a reasonable rent, a second option is to list the property as a short sale. Realize however that there are consequences to doing so. For example, a short sale usually lowers the credit ratings of the homeowners.
A third option is to allow the property to fall into foreclosure. This of course should be considered a last resort.
For many divorcing couples, selling the family residence is the best option. But for individuals who wish to keep their homes, whether to make the divorce easier on their kids or to gratify an emotional attachment, there are options. Review your financial situation to make the best choice given your circumstances.