Some of the first things anyone facing divorce thinks is "Where am I going to live? Who's going to move out? Can I afford to keep the house?" It's normal to be concerned about protecting your assets, and overwhelmed about the idea of where you, your spouse/ex, and your children might live. If you find yourself asking similar questions, read on... The following steps for homeowners considering, or in the midst of, a divorce will help you move through a time of upheaval and change, and discover how to minimize your overwhelm, and maximize your well-being, as well as your bottom line. (*Please note this is general information, not to be taken as specific advice; consult an attorney or financial adviser for your particular situation.)
1. Consider all of your options. There are typically three ways to divide a house: A. Sell the house, and divide the profits. B. One spouse buys the other spouse out (through refinancing, or offsetting the equity in the house with other assets. C. Maintain joint ownership for a period of time. When considering which of these options makes the most sense for you, ask yourself these questions: Does it make sense to keep your house, or have your spouse keep the house? Can either of you afford it on your own? Can you afford to buy out your spouse? Can you get creative with home ownership, and try house sharing/nesting, where the kids stay in the home, and the parents come and go when it's their custodial day?
2. Pull a preliminary title report. One of the first things I recommend to my clients who are considering divorce, is to "pull" or request a copy of your title report. This can be done through a title company, or by going to the county recorder's office. Title is a written recording of the ownership of property, and everything related to that ownership. It is important to know how a property's title is held, as it will almost certainly play a role in the divorce process. Who really owns the house? Is it in your name? Are you and your spouse both listed? (There are actually many different ways to hold title, such as: "sole and separate," "joint tenants with rights of survivorship," "tenancy in common," "community property with survivorship," "trust," or "corporation/partnership.") The title is the first step in determining if the property is sole and separate property (did you or your spouse own it prior to the marriage; did you or your spouse inherit it during the marriage; or did you or your spouse receive it as a gift during the marriage?) or is it marital property (property acquired during the marriage, and/or the increase in the value of property owned prior to marriage -- this only applies in certain states, please consult an attorney). To change ownership of a property during a divorce, consider a quit claim deed, or an inter-spousal transfer. This probably all sounds incredibly complicated, and it can be. Like most things in real estate, you will want a trusted expert to walk you through this process. In this case you will want a professional title rep. In addition, to informing you on how the title is held, they will also be able to check the property for any encumbrances, or liens against the property.
3. Know what your house is worth. There are a number of ways to figure out how much your house is worth. The easiest way is to check on zillow.com, and/or other such real estate websites that give you an estimate of your home's value. But I suggest you go a step further, as these sites are not very accurate in terms of price. An experienced and knowledgeable real estate agent will give you a price opinion based on a walk through of your property, coupled with a thorough study of recent market comparables (both sold and active). A third option is to hire a professional appraiser, who will do a more thorough analysis of the property, and issue a written report for a fee.
4. Figure out what your equity is in the house. Once you know how much the house is worth, along with how the title is held, you can determine the amount of equity in the house. The simplest way to determine a ballpark of equity in your home, is to take the fair market value of the home, and subtract any mortgages or other encumbrances, such as a home equity line of credit (HELOC). An example would be: Mary and Joe's house is currently worth $1,500,000, and they have an $800,000 mortgage on it. Their equity in the house would be $700,000. When considering how to divide up this equity, the math gets a bit more complicated. You want to look at the possible tax implications of a sale to get a true understanding of the value of the marital home. In order to do this, you need to determine the "basis" in the house, as opposed to the equity. A CPA or CDFA (certified divorce financial analyst) will be able to help you to factor your basis. Basis is important when it comes to taxes at the time of sale.
5. Calculate your costs per year of keeping the home. If you'd like to keep your marital home after your spouse moves out, you will want to take a thorough look at all of the costs associated, and answer the following question: "Can the resources that supported one household now comfortably support two?" There are many expenses associated with owning a home, including mortgage(s), taxes, insurance, and maintenance. And it's important to have a clear idea of what each of these things cost. What is your mortgage payment now? Will you be able to keep your current mortgage, or will you have to refinance (either to buy your spouse out, and/or relieve them of their financial obligation)? How much are property taxes? What do you pay in homeowner's insurance? What maintenance is or will be required in the near future? To get a comprehensive understanding we suggest you review your bills, and consult with the experts. A mortgage broker or banker can tell you what you can qualify for in terms of refinancing. Inspectors can help you get a handle on the scope of maintenance you may be faced with down the road. (I recommend my clients consider a general inspection, and possibly some specific ones as well, such as a termite specialist. No one wants to be caught off guard with very costly expenses, such as a new roof, plumbing, or electrical.) There are other experts who can help you get an accurate idea of your financial picture. Consider setting up an appointment with a CDFA or CPA who can run through various scenarios with you, and project out estimations of wealth over time.
6. Determine Your Timeline. When planning for a move (yours or your spouse's), it's in everyone's best interest to think ahead and create some sort of plan or timeline. Some things to consider: If you're planning to sell your house, it's important to know your current market conditions. Your local real estate market may have certain times of the year when most of the homes are bought and sold. Contact a real estate agent, who can keep you in the loop about home sales in your immediate area. Also, consider your family's situation -- do you have certain commitments, such as kids in school or enrolled in sports/activities? You may want to maintain your living arrangements for a practical period of time for consistency. Economics may also play a factor. When to take yourself or a spouse off of title may affect your capital gains deductions. There are tax exclusions for capital gains for single taxpayers ($250,000) that is different for married/filing jointly taxpayers ($500,000). Which could be a huge difference for one or both of you. Consult a CPA for specifics on this.
7. Keep calm, and move on. Emotions can run high in separation and divorce. Not to mention that moving under the best of times can be really stressful. There are healthy ways to handle emotions during this incredibly difficult time. Talk about your emotions with someone you trust: a therapist, a divorce coach, close friends, or family. Find a support group that specializes in divorce, such as my Moving On or Getting Unmarried groups. Make sure to take good care of yourself, find time to exercise, eat right, and get enough sleep. Don't go through this alone. Consult the appropriate experts. If you need a referral of any type, please reach out to me. I am here to provide support, expertise, as well as connection to a community of experts. Together we will help support, protect, educate, and nurture you through this time of upheaval and change.
Certified divorce coach and certified real estate divorce specialist, Kira Gould is dedicated to helping people "get unmarried" in a conscious, clear and compassionate way.