Four Common Myths About “The House” in Divorce
The house is the biggest marital asset for most people. That’s why when you are going through a divorce, it’s worthwhile to take some time to figure out how to use or divide this asset wisely. In this post, I examine four myths surrounding the family home and the role it plays in divorce.
1) The kids need the house. Parents often feel guilty that their children will be impacted, not only by the separation but also by selling the home. However, research shows that in divorce, the children’s most important attachment is not to their house but to their parents. In my experience, children are very resilient. Not only do they learn to cope with their parents’ separation but they can adjust, even happily, to a new home or home, too. What is most vital is how mom and dad get along with each other, and how they frame the idea of the new house for their children. If the parents exhibit excitement about a new home it will be infectious.
2) The only way to share the equity in the house is to sell it. If you don’t have the funds to buy your spouse out directly, there are a number of options for getting equity out of the house. To name a few:
- Trade another asset, for example, other real estate, stocks, mutual funds, or retirement funds
- Structure a buy-out over time
- Consider jointly owning the house for a period of time and then sharing the equity when you sell it
3) We can’t afford to keep the house. Give yourself a reality check by researching the rental rates of similar housing. You are likely to find that multi-bedroom rental space in the greater Washington, D.C. area often costs more than the mortgage on a house, especially when you consider the mortgage interest tax deduction.
4) We need to refinance now to take advantage of the low mortgage rates. Mortgage rates are at an all-time low but it might not make sense to rush out and refinance to help the cash flow. Keep in mind that if you and your spouse are negotiating who gets to keep the house, ultimately “the keeper” will need to refinance again to get a mortgage in his or her own name. Refinancing fees at around 2% can add up to many thousands of dollars. You don’t want to double up on those! While you’re still negotiating what will happen with the house, it doesn’t hurt to go ahead and get qualified for a mortgage in your name only. Doing so will give you some valuable information about how much of a mortgage you would qualify for on one income, whether you might be able to get some cash out if you need it, and what your interest rate and monthly payment would be.
There is not a “one size fits all” solution to what to do with the house. The good news is there are good options.
5 Comments
Eileen, you make excellent points here about some of the very important issues couples should consider before deciding what to “do” about the house! An additional point is that by keeping these decisions within control of the parties, mediation enables couples to choose solutions that are more flexible and detailed than the more limited options that are available to a judge.
Alexandria, thanks for adding another excellent point!
I find also that too often, one party or the other (or both), have an extreme attachment to the house that is irrational. Life, as they know it, will cease to exist if they don’t get to keep the house. THAT house. Often, the house is not affordable and they must choose a different option, they must downsize, they MUST learn to live with fewer rooms. Unfortunately, often, the thing that brought them to divorce is financial mismanagement, and too much house can be a big part of the problem. What was too much for two, is beyond too much for one, but they are not willing to open thier minds and consider the options. They do not want to keep their options open, they want to lock up the “it’s mine” conclusion before taking another step, and by having that mentality, they do themselves and their kids a disservice. What happens in the kids heads if you’ve said, “we NEEEEED it”, and then you lose it, for example? Being closed to considering the options is one of the biggest mistakes, and unfortunately, one of the most frequent mistakes.
Hi Eileen – I stumbled upon your blog via LinkedIn. Great post. I really enjoy your writing style and your point of view. I’m looking forward to future posts. Cheers, Jeremiah
Wonderfully informative and positive Eileen! Great work…….