Selling Your Home due to a Divorce.
"Once you know how a divorce affects your home, mortgage and taxes, critical decisions are easier. Neutral, third party information can help you make logical, rather than emotional decisions"
- Divorce and the Matrimonial home
- What You Need to Know About Your House, Your Mortgage and Taxes
- How to Avoid Costly Housing Mistakes in the Midst of a Divorce
Divorce is a tough situation which opens up many emotional and financial issues to be solved. One of the most important decisions is what to do about the house.
In the midst of the heavy emotional and financial turmoil, what you need most is some non-emotional, straight-forward, specific answers. Once you know how a divorce affects your home, your mortgage and taxes, critical decisions are easier. Neutral, third party information can help you make logical, rather than emotional decisions.
Probably the first decision is whether you want to continue to living in the house.
- Will the familiar surroundings bring you comfort and emotional security, or unpleasant memories?
- Do you want to minimize change by staying where you are, or sell your home and move to a new place that offers a new start?
Only you can answer these questions, but there will almost certainly be some financial repercussions to your decision process.
- What can you afford?
- Can you manage the old house on your new budget?
- Is refinancing possible?
- Or is it better to sell and buy?
- How much house can you buy on your new budget?
The purpose of this report is to help you ask the right questions so you can make informed decisions that will be right for your situation.
You have 4 basic housing options when in the midst of a divorce:
- Sell the house now and divide up the proceeds
- Buy out your spouse.
- Have your spouse buy you out.
- Retain your ownership.
It's important for you to understand the financial implications of each of these scenarios.
1. Sell the House Now and Divide Up the Proceeds.
Your primary consideration under these circumstances is to maximize your home's selling price. We can help you avoid the common mistakes most homeowners make which compromise this outcome.
As you work to get your financial affairs in order, make sure you understand what your net proceeds will be - i.e. after selling expenses, and after determining what your split of the proceeds will be.
Note that the split may not be 50/50, but rather may depend on the divorce settlement, the source of the original down payment, and the legislative property laws in your area.
2. Buy Out Your Spouse.
If you intend to keep the house yourself, you'll have to determine how you'll continue to meet your monthly financial obligations, if you now only have one salary. If you used two incomes to qualify for the old loan, refinancing on your own might be a challenge.
3. Have Your Spouse Buy You Out.
If you are the one who is leaving, you have the opportunity to start again in new surroundings with cash in your pocket. However, be aware that if the the old home loan is not refinanced, most lenders will consider both you and your spouse as original co-signers to be liable for the mortgage.
This liability may make qualifying for a new mortgage difficult for you if you decide to purchase a home, even though you won't have legal ownership.
4. Retain Joint Ownership.
Some divorcing couples postpone a financial decision with respect to the home and retain joint ownership for a period of time even though only one spouse lives there.
While this temporary situation means you have no immediate worries in this regard, keep your eye on tax considerations which may change from the time of your divorce to the time of the ultimate sale.
When You Decide to Sell.
If you and your spouse decide to sell your home, it will be important to work together through a professional to maximize your return. Differences aside, you both should be present when a listing contract is put together.
Both of you should understand and sign this contract, and both should be active in the ultimate negotiations.
When You Buy Your Next Home.
Use the proceeds from your previous home or buy out to determine an affordable price range for your next home. Maintain a clear focus on getting the right home to suit your new situation.
You may wish to review with an agent who offers a house-hunting service to help find a home that matches your new home buying criteria.
Selling a Matrimonial Home:
Important things to remember when selling a Matrimonial Home: (your main residence is the matrimonial home)
Who is on title?
If you both are then you both must agree who to sell the house with, what price to list it at and when your preferred closing date would be.
If you are not able to speak about this you can have your Lawyers speak for you to the Realtor. But, if at all possible it's easiest to choose an agent and sit down together to decide on these issues.
Making things easy or difficult is in your hand .If something can be achieved easy way why make it difficult.
Even if you both are not on title, the spouse that is not must agree to the terms of the sale (price, etc) and (s)he must also sign the listing agreement(Spousal Consent).
When the offer comes in both the owner on title and the non-owning spouse must agree that the offer is satisfactory and sign the final agreement of purchase and sale. (there is a special spot for the spouse not on title to sign to agree that (s)he is aware and agrees with the terms set out in the agreement of purchase and sale.
You have to subtract the mortgage from the value of the house, of course, to figure out what your home is worth. When you have that number, what then? You need to make some decisions.
If you've decided to hold on to the home, meanwhile, how does that work?
Say that you've decided to hold on to the house until your youngest child turns 19 and has been out for a year. How, then, will you share in the profit?
Because you and your spouse are working this out (rather than letting a judge decide for you), you can make whatever arrangements you both agree to, but here are some ideas:
* The spouse who pays the mortgage from the time of the divorce until the house is sold should probably get a credit from the net sale proceeds (gross proceeds less outstanding mortgage, broker's fees, and so on) to the extent
the principal of the mortgage was reduced while he/she lived there and paid the mortgage. In the best of all possible worlds, that spouse would also get credit for any improvements made to the house during his or her solo tenure there.
The rest of the net proceeds would then be split 50-50. By the same token, the cost of improvements to the home over a minimal amount (say $300) could be shared. But watch out for disputes over whether the repair is needed.
* Consider agreeing that if the remaining spouse remarries, or has a significant other move into the house, the sale provisions which were going to go into effect when the youngest child turned 19 (or 21, whatever you have agreed) apply after the move or remarriage. For some, having a stranger move into "his" or "her" house is too much to bear.
* If your spouse is paying the mortgage with support from you, it might be fairer to simply agree to divide the net proceeds with no credit for mortgage payments.
Even if the sale of the home seems far in the future, you might also take the time, now, to devise a "first option," which means that the spouse who stays in the house has the first right to match a bona fide offer on the house and "buy out" the other spouse.
If that spouse passes on the right to buy, the spouse who didn't stay in the house then has the same right to buy out the other. (You can also reverse who gets the first option.)
What if I must sell my house to make ends meet?
If your living situation and financial status have changed for the worse because of your divorce, you might consider liquidating some assets or selling the house that was awarded to you to help with your cash flow.
Before you make this decision, speak with your Lawyer.
Many factors should be considered if you are thinking about selling your home. Your house or condo is an asset as well as a home.
If you have children, their emotional needs have to be considered. If you receive the home through a divorce settlement or judge's decree while your
spouse gets the liquid assets, think carefully about whether you have enough cash to live comfortably or whether you should move into less expensive living quarters.
If the monthly payments on the home are small, you might as well stay where you are.
Whenever divorce is in the cards, you must consider your living expenses to see what you can afford on your income with or without support from your ex-spouse.
Look at your current expenses and really think on it – can you afford to pay for your current home by yourself?
