January has earned the moniker ‘Divorce Month’ among legal professionals, often marking a period when couples finalize separations due to the end of holidays and the start of a new tax year. A significant aspect of this process involves the marital home, a major asset that requires careful consideration. Understanding your options regarding the property is crucial for a smoother transition.
Key Takeaways
- Decide whether to keep or sell the home.
- Determine the home’s current value and how to handle equity.
- Assess your ability to qualify for a mortgage independently.
- Evaluate the affordability of homeownership costs on your own.
- Consider the impact of children residing in the home.
To Stay or To Sell: Your Primary Decision
The first and most critical question to address is your desire regarding the family home. "What would you like to do with the home?" is the initial inquiry many divorce attorneys pose to their clients. Emotional attachments can be strong, and it’s understandable if the decision isn’t immediate. Consulting with a financial planner or a Certified Divorce Lending Professional (CDLP) can provide clarity on your financial standing and model various scenarios for asset division, including your capacity to secure a new mortgage or refinance an existing one.
Understanding Your Home’s Value and Equity
To make informed decisions, obtaining a professional appraisal to establish the home’s fair market value is essential. Subsequently, you must consider how to address your ex-spouse’s share of the home’s equity. The most direct route is selling the property and dividing the proceeds. If one partner intends to retain the home, a buyout of the other’s equity is necessary. This might involve accessing retirement funds like a 401(k), though potential tax implications and early withdrawal penalties should be weighed. A financial professional can help assess if this is a viable or necessary option.
Can You Afford to Go It Alone? Mortgage Qualification
If one spouse aims to keep the home and a mortgage remains, refinancing the loan is typically required. This step is vital for disentangling debts and can impact the other spouse’s creditworthiness for future housing. Until the mortgage is refinanced or the home is sold, both parties remain liable for payments if their names are on the loan. Lenders often require a history of receiving child or spousal support (typically six months to a year) before considering it income for mortgage qualification. Attorneys can help draft support agreements during separation to establish this payment history sooner.
Assessing Ongoing Homeownership Costs
Even if you qualify for a mortgage, it’s crucial to ensure you can afford the ongoing costs of homeownership. Mortgage rates may have increased since the initial purchase, leading to higher monthly payments. Refinancing also incurs closing costs, usually 2% to 6% of the loan amount. Beyond the mortgage, consider expenses like homeowners association fees, potential maintenance (roof repairs, snow removal, gutter cleaning), and general upkeep. A realistic budget is necessary to maintain the house independently.
The Impact of Children on the Home Decision
When children are involved, the decision-making process becomes more complex. Courts or parents might opt to let the children remain in the home with the primary custodial parent, deferring the sale until the children reach adulthood. This can delay the equity payout for years. Both parents would continue to co-own the property, requiring clear agreements on maintenance and expenses, ideally documented in the divorce settlement. Mortgage contributions for the children’s housing are often incorporated into child support payments, which lenders will factor into debt obligations when evaluating loan applications.