Should you keep the house or sell it?

Iris decided to divorce. Her spouse wanted to sell the house, but Iris wanted to keep it. It was something Iris just had to have in the negotiation, and so she did.

Now, years after the divorce, Iris regrets her decision. Unfortunately, this type of regret is not uncommon for people like Iris.

“I tell people all the time that you have twice the expenses and the same pot of income to go around,” says Jennifer Failla, principal and founder of Strada Wealth Management. “You might not want to hear the reality, but trained professionals are your advocates and your agents of reality.”

The first thing to consider is if you should even want the house. Ask yourself, “Am I doing this for me or the kids?”

Well, time passes and things change. Kids grow up and move away. Is this the home where you want to live 10 or 20 years from now? Then there is the affordability factor. Even if the house is paid for, there are utilities, regular maintenance, taxes and insurance, not to mention major repairs. Depending on the size and location of the house, this could run into thousands of dollars per year.

If the house has a positive value or equity, think about what you would do with your portion of the equity, if the house were sold. Would you be better using this money for investing or buying a smaller place to live?

Many times a thorny issue is that of a new mortgage should there be an outstanding note on the property. If you keep the house, your former spouse will demand to be removed from any mortgage note on the property. However, the bank does not care about the divorce or who now owns the deed. The bank wants its money back. So if you are keeping the house, you will need to refinance the existing mortgage. With this in mind, will you be able to qualify for a new mortgage as an individual?

Future taxes are not something most of us worry about, but it’s something to consider in this case. Let’s say you owe nothing on the house. And at the time of the divorce, the house is appraised at $200,000. If you keep the house, your spouse gets a $100,000 in other marital assets. This also means that your spouse pays no tax on the “proceeds” from his or her “half” of the house. But if, in the future, you decide to sell the house, you will carry the full tax burden for the $200,000, plus any appreciation in the house’s value.

There are many emotional reasons and attachments for wanting to keep your home. Just keep in mind that emotions fade over time and then you are left with the financial reality of your decision.

Carlos Blanco founded Matters of Divorce www.mattersofdivorce.com to provide answers, referrals and support to people considering divorce or who recently have been divorced. Contact him at 305-908-1171 or via email at cblanco@mattersofdivorce.com.


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