How to Avoid Costly Housing Mistakes During a Divorce

Going through a divorce can be overwhelming, both emotionally and financially. One of the biggest decisions you’ll face is what to do with your home. The right choice can provide stability, but the wrong one can lead to unexpected financial struggles. With so much uncertainty, having clear, straightforward information can help you make informed, confident decisions.

This guide aims to help you navigate the housing decisions that come with divorce. By understanding how divorce impacts your home, mortgage, and taxes, you’ll be in a better position to make the right choices for your future.

Key Questions to Consider

When deciding what to do with your home, you’ll need to ask yourself some important questions:

• Do you want to stay in the home? Does it feel like a comforting space, or does it bring up painful memories?
• Can you afford to keep the house on your own?
• Is it possible to refinance, or would it be better to sell the house and move to a new place?

These questions can help you clarify your goals, but remember that there will be financial consequences for each option. The decisions you make now can impact your future financial health, so it’s important to weigh them carefully.

4 Housing Options During Divorce

There are four main options when it comes to handling your home during a divorce. Let’s explore each one to understand the financial implications.

1. Sell the House and Split the Proceeds

Selling the home can provide a clean break and a financial foundation to start fresh. Your goal will be to get the best price for your home, and we can help you avoid common mistakes that could lower its value. When selling, it’s important to understand your net proceeds – that is, how much you’ll actually receive after selling expenses and any division of assets. Keep in mind that the split of proceeds may not always be 50/50 and could depend on your divorce settlement, where the original down payment came from, and local property laws.

2. Buy Out Your Spouse

If you plan to keep the house, you’ll need to figure out how to buy out your spouse’s share. This can be a great option if you love the home and want to stay, but it’s important to consider whether you can afford the mortgage on one income. If you and your spouse previously used two incomes to qualify for the loan, refinancing on your own could be tricky. Make sure you’re clear about the costs involved in keeping the house long term.

3. Have Your Spouse Buy You Out

If you’re the one leaving the home, your spouse may choose to buy you out, which can provide you with cash to start fresh. However, you’ll want to be aware of one important detail: If the mortgage isn’t refinanced in your spouse’s name alone, both of you will remain responsible for the debt. This can affect your ability to qualify for a mortgage if you plan to buy a new home. Be sure to consider the potential long-term impact on your credit and future housing options.

4. Retain Joint Ownership

In some cases, couples decide to retain joint ownership of the home for a period after the divorce, even if only one spouse remains living there. While this might seem like a temporary solution, it’s important to keep an eye on tax considerations, as they can change over time. The eventual sale of the property might lead to unexpected tax consequences, so stay informed about any changes in your financial situation.

When You Decide to Sell

If you and your spouse decide to sell the home, it’s important to work together to get the best possible return. Although you may have different opinions, both of you should be involved in the process. A professional real estate agent can help you navigate the sale, and both spouses should be present when signing the listing contract and during negotiations.

When You Buy Your Next Home

Once you’ve sold the home or completed a buy-out, the next step is finding your new place. Use the proceeds from the sale or buy-out to determine your budget. Focus on finding a home that suits your new lifestyle, whether that means downsizing or finding a fresh start in a new location. Working with an agent who understands your needs and priorities can help you find the perfect home for your new chapter.

Remember, making informed decisions about your housing situation during a divorce can make a huge difference in your financial and emotional well-being. Stay focused on your goals, and take the time to understand all your options before making any major decisions.