Can I keep the house? This is often one of the first questions I get from clients and one of the hardest for them to make strategic choices around. So let’s review some of the factors that might go into your decision about the marital home in your divorce.

What’s Your Why?

Take some time and list all the reasons keeping the home feels important to you.

• Do you have older teens that are close to graduation?
• Is it close to your work, church, or other important activities?
• Do you have nearby family support?
• Is it located in a school district that provides necessary services?
• Are other housing options more expensive?
• Do you feel connected to neighbors and the community?

Knowing your “why” not only helps you understand your own reasons, but may be helpful when it comes time for settlement discussions. If you and your spouse both agree that your special needs child is best served by the school down the street or your mother provides childcare, then that may be something you can appeal to in your negotiations. The way you approach conversations with your spouse can make a HUGE difference in whether you are likely to get what you want in divorce – check out this post on High Conflict Divorce Communication for more tips.

Budget

You may WANT to keep the house, but can you afford it? Knowing what’s coming in and what’s going out each month is the key to good personal financial management and it’s critical to making smart divorce decisions. Start with getting a good idea of what your monthly cash flow will look like by putting together a budget. The budget worksheet in my Ditch Your Divorce Fears Financial Planner offers you the ability to explore some alternate scenarios so you can see the impact that different living arrangements and income levels have on your bottom line.

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Keep in mind, it’s not just the monthly mortgage payment that you need to consider:

• property taxes and homeowner’s insurance (if not included in your mortgage payment)
• HOA dues or assessments
• repairs (what if the roof, water heater, air conditioner, etc… need to be replaced)
• home maintenance (lawn care, gutters, snow removal, pool maintenance)
• furnishings (yes, your spouse will likely get some of the furniture)
• updates and future sales costs

Financial Implications

So you’ve worked through your budget and the numbers support your ability to handle the monthly payments, utilities and other expenses associated with the house – great. Now let’s look at what you might need to happen in order to put that house on your side of the balance sheet in the final divorce settlement agreement.

The equity in your home (market value minus mortgage balance) is a marital asset (barring any separate property issues – consult your state laws and your attorney for information about this). So looking at this example:

• Market Value = $300,000
• Mortgage Balance = $100,000
• Marital Equity = $200,000 (300,000-100,000)
• Each Spouse = $100,000

That means if you want to keep the house, you’ll need to consider how you will be “buying” your spouse out of that equity so that you can own the home by yourself. Typically clients approach it in one of two ways:

Trade Assets

In this case, you could plan to refinance the existing mortgage amount and trade other assets (retirement or investment accounts) to pay the spouse’s equity. Using the example above, you would take $100,000 less from say the 401(k) account to offset. It’s important to consider the position that will leave you in for retirement planning purposes – based on the assets that would remain, your age and ability to increase contributions. Would this decision compromise your future financial security?

Increase Mortgage

Another option would be to increase the existing mortgage loan by the amount needed to buy out the other spouse. In our example, you would need to increase the mortgage from $100,000 to $200,000 in order to accomplish this. As I write this, you could expect about a 4.5% interest rate on a 30-year mortgage which means you would be adding approximately $500/month to your mortgage payment. In addition, the mortgage rate you are offered for refinance may be higher than your current one if you have a lower credit score, lower income or less credit history, so your payment could be even more than expected. Does your monthly budget have enough room to accommodate this higher payment without compromising your current financial security?

Home Financing

What about the logistics of actually making you the sole owner of that home post-divorce? Again, you’ll either be buying them out with other assets or increasing the existing mortgage balance to pay them their share. Unless the home is completely paid off and you won’t need any financing, you should consult with a mortgage lender to determine what is required to qualify for a home loan.

According to Investopedia:

• The general rule is that you can afford a mortgage that is 2x to 2.5x your gross income.
• Total monthly mortgage payments are typically made up of four components: principal, interest, taxes, and insurance (collectively known as PITI).
• Your front-end ratio is the percentage of your annual gross income that goes toward paying your mortgage, and in general, it should not exceed 28%.
• Your back-end ratio is the percentage of your annual gross income that goes toward paying your debts, and in general, it should not exceed 43%.

If you’ve been a stay-at-home parent or lower earner and will rely on child or spousal support payments, then this step is critical because there are some time constraints that you need to be aware of. Lenders look at income in order to approve you for a loan, so even if you have a hefty 401(k) or pension, that may not be enough. Consider talking with a Certified Divorce Lending Professional who can assist you in sorting through the specifics of mortgage lending in divorce.

Creative Settlement Options

What if your budget will support the current payment, but you can’t qualify for refinancing? Or there aren’t enough assets to offset your spouse’s share of the equity or you would prefer not to compromise your financial future by giving up retirement funds?  Are you stuck selling or giving the home to your spouse?

Maybe not. Remember I asked you to really dig into the reasons WHY keeping the home was important to you?  If it’s possible those same reasons are important to your spouse, are there creative options the two of you can come up with that meet both your needs?

• Continue to jointly own the home until a child graduates, then sell and split the proceeds
• Give you an extended period of time to qualify for financing
• Provide a lump sum of spousal support to pay off the mortgage
• Offer to pay for schooling or training so you can find employment

One of the things I love most about mediation is that it gives you the opportunity to be creative and design solutions that work best for your family. This approach will require you to be flexible in your thinking, consider both your own and your spouse’s feelings and interests, and manage your emotions so you can communicate in a collaborative manner. But the benefits can be a better outcome for everyone – and isn’t that really the goal?

Need Some More Help Answering the Question “Can I Keep the House”?

As a CDC Certified Divorce Coach, Certified Divorce Financial Analyst, and trained Family Court Mediator, I specialize in helping clients sort through these hard decisions. Although I frequently work in the arena of high conflict divorce, my ultimate goal for every family is to find an approach that creates the best solution for everyone involved.

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Wishing you strength and wisdom,