7 Steps to determine if you should keep the house in your divorce
I stayed in my house when I got divorced. At the time, the housing market had declined so much that we had negative equity in our home. Selling our house would have put us in a worse financial situation than keeping it and we had three young children. Keeping them in the house gave them some stability during a difficult time for our family.
That said, maintaining the house that I had with my ex has had its ups and downs. I'm glad we were able to stay put but the maintenance was a lot of work for me at first. I've since gotten remarried and now my kids are a little older so they can help more. Still, when I was on my own, to say I was overwhelmed would barely scratch the surface of how I was feeling.
I've also had some huge home-related expenses since my divorce that set me back significantly. At the time, the decision to stay in the house was a no-brainer. However, looking back, I have to wonder if the stress of being responsible for the house hasn't been more difficult than if I would've just moved in the first place.
Deciding whether or not to keep your home in a divorce settlement is a huge financial decision but I always acknowledge with my clients that it's very emotional as well. I put together this exercise to help take the emotion out of the decision so you can try to be logical about it.
A step-by-step approach to determining if you should keep the house in your divorce
Here is an exercise to help you determine if you should keep your house in your divorce settlement. I encourage you to consider every decision that you are making as part of your divorce settlement thoughtfully, fully understanding the short and long-term implications of your decisions.
Steps to determine if you should keep your house in your divorce
Step 1: Get an appraisal (or two)
Have the property appraised. It’s imperative that you know the value of each asset that you are negotiating. Sometimes you need to get more than one appraisal because the values can be pretty far off. Please do not skip this step and depend on sites like Zillow. They can be very off from the actual value. The cost of an appraisal may cost you a few hundred dollars but you are negotiating an asset that is worth many thousands of dollars. You need good information.
Step 2: What will the ongoing expenses be?
List all the costs associated with keeping the house. This should include all utilities, taxes, and insurance. It should also include regular household maintenance and any large improvement-related expenses. Identify your sources of income and determine if you will have enough cash flow to maintain the house.
Step 3: Reality check
In addition to getting clear on the ongoing costs, consider if the house will need to be refinanced in only your name. If there is a joint mortgage on the home or you want to pay out your spouse's share of equity through a mortgage on the home, you need to make sure that you are eligible for financing. Sit down with a lender and/or a mortgage broker and discuss your options. Please do not agree to anything without taking this very important step.
Step 4: Consider alternatives
Consider 3 alternatives to keeping the house. Visit them and do your research. List all the costs associated with each alternative. Even if you are pretty sure you want to keep the house, I want you to try to push yourself to take this step. You may find that there is another option that you can get really excited about or at a minimum, will make life easier for you because you won't be burdened with the expenses of the marital home.
Step 5: Consider the pros and cons of each alternative
Make a list of pros and cons for each option. Once you have your list of four options (your home and three alternatives), go through each one and determine what the benefits and drawbacks are of each. For example, a huge benefit to staying in your home is not having to move. However, if moving to a new place can free up your cash flow by an extra $1000/mo, it might be well worth the hassle of moving.
If you need additional information to fully compare your options, make a list of the information you need and detail how you will acquire the information.
Step 6: Narrow down the possibilities
Narrow your 4 options to 2 options and then give yourself a couple of weeks, if possible, to consider the two options. This is a big decision and not one that should be made on the fly. If a clear decision arises, congratulations, you have your answer. If not, move on to the last step.
Step 7: Listen to your intuition
Now you may think I’m crazy when I give you the next step but stay with me. It’s a coin toss. Heads up you choose option 1 and tails up you choose option 2. Once you toss the coin and determine which option to choose, check in with yourself on the results. How do you feel? Are you relieved? Are you disappointed? That’s what will give you your true answer.
If you have decided that keeping the house is the right decision for you, check out the post I wrote on how to keep your house in a divorce.
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