Article: Can I Keep the House After Divorce?
For many people, the family home is more than just a house; it’s the centerpiece of their life, full of memories and a sense of stability. When divorce happens, one of the most pressing questions is often, “Can I keep the house?” The short answer is it’s complicated. Just because you can doesn’t always mean you should.
The decision to keep the house is a major financial one, and it’s essential to approach it with a clear, objective perspective, separating emotion from logic. The process is not about who “wins” the house but about what is most financially sound for your post-divorce life.
Understanding the Financial Landscape
Before you can even consider keeping the house, you must assess your personal financial situation. Can you afford the mortgage payments, property taxes, insurance, and maintenance on a single income? A mortgage lender will evaluate your ability to qualify for the loan on your own. This means your income, credit score, and debt-to-income ratio will be scrutinized.
If you have a joint mortgage, you must remove your ex-spouse’s name from the loan. A simple quitclaim deed, which removes their name from the property title, is not enough. The mortgage company still holds both of you liable for the debt. The most common way to accomplish this is through a refinance. You would apply for a new mortgage in your name only, which would pay off the original joint loan.
The Buyout: How It Works
If you want to keep the house, you will need to “buy out” your ex-spouse’s share of the equity. This is the difference between the home’s current market value and the outstanding mortgage balance. For example, if your home is worth $800,000 and the mortgage is $400,000, the equity is $400,000. Each spouse’s share would be $200,000 (assuming an equal division).
To pay your ex their share, you can either use other marital assets (like savings or retirement accounts) or you can do a cash-out refinance. A cash-out refinance allows you to take out a new, larger mortgage and receive the difference in cash to pay your ex. For example, if your ex’s share is $200,000 and your existing mortgage is $400,000, you might need a new mortgage of $600,000 to cover both.
When Keeping the House Might Not Be the Best Idea
While keeping the home may feel right emotionally, it can often be a financial burden. Some key considerations include:
- The new mortgage: Can you qualify for and comfortably afford the new monthly payments?
- Future costs: Will you have enough money for unexpected repairs, maintenance, and property tax increases?
- Depleting assets: Are you using a significant portion of your retirement funds or other assets to buy out your ex? This can leave you financially vulnerable in the long run.
- Tied-up capital: Keeping the house means your capital remains tied up in one asset. Selling the house can free up cash for a fresh start, allowing you to downsize or move to a more affordable area.
- Ultimately, the decision of whether to keep the house is a personal one, but it requires a strategic financial plan. Consulting with a Certified Divorce Lending Professional (CDLP®) and a family law attorney can provide you with the expert guidance you need to make the choice that is right for your financial future.