The family home; it’s where memories were created. And, for most families, their home is one of their bigger investments. Going home can create a feeling of inclusion and safety and this emotional attachment is different than the feelings associated with other investments like stocks and bonds.
During the divorce process, the family home can create a financial complication. If one person has a stronger identification with the home and wants to keep it, the solution may seem simple. Design a settlement that allows this person to take the equity, or value of the home. However, implementing this transfer may be difficult.
During the divorce settlement process, the ownership will change and, if the home has a mortgage, the person keeping it will need to get a new mortgage in their own name. Again, this sounds simple, but it can be difficult if the person keeping the home cannot qualify for the loan on their own depending on factors like income, credit, or if their debt to income ratio is too high. Mortgage companies require evidence of the ability to make the loan payment. This can be done by providing evidence of your income through employment and/or several months of spousal support.
If the loan is large, an individual income and spousal support may not be sufficient, and a mortgage loan may not be possible. In that case, you may be inclined to liquidate investments to pay cash for the home. Depending on how the investments are held, this could lead to taxes and possibly early withdrawal penalties on retirement accounts. There are many creative solutions that may be applicable to your case, and we can help you sort through all options.
At Alternative Divorce Solutions, we help you create a plan of action. By planning for the cost of the home, we may determine that you should negotiate for investments that are not in a retirement plan. Or you may want to negotiate for a larger amount of support over a shorter period of time so that you can qualify for the mortgage loan.
Having someone on your team who is there to listen and help determine the best course of action with your settlement may be what you need. There are also other factors to consider other than just refinancing the mortgage.
- Do you want to keep the house because of the memories?
- Is your plan to only stay in the house until the kids finish school and leave for college?
- Do you want to keep the house so the kids have a place to stay when they come to town?
- Does the house need any repairs or maintenance that haven’t been addressed?
- Do you want to keep the house because it seems like the right thing to do but are unsure how to afford it?
- Do you need to take a retirement account settlement and cash it out? If so, is the special rule to avoid penalties on retirement account withdrawals applicable to you?
These are all things to consider, but the most important question really is – what do you want?
Making decisions about the family home is often one of the hardest parts for those facing divorce. So many memories and experiences went into it and now tough decisions have to be made. We work with people to help them make the best decisions for their financial future apart. If you would like help working through these decisions, contact us for your complimentary consultation.