For many divorcing couples, the house is the single largest asset of the marriage. If you're like most, you and your spouse owned the house jointly and you both own money on the mortgage.
Will you sell the house and split the proceeds? Will one of you move out while the other stays in the house and continues making the mortgage payments? You need to consider these things when planning to make an arrangement:
- If you're the one who's leaving
- If you're the one who's staying
- How much is the house worth?
- Do you have any equity in the home?
- Selling the house
- Refinancing the house
- Will you continue living together?
- Capital gains
If You're Going to Stay in the House
If you want to stay in the house, first you need to make sure that you can afford the mortgage payments. Often, when people get divorced they underestimate their living expenses once the divorce is finalized.
Do yourself a favor before you decide to keep the house: develop a detailed budget and make sure you can afford to live comfortably within it.
If You're Packing Your Bags
If you're planning on moving out of the marital home, think about how it's going to affect your credit. Though you'll be living somewhere else, your name is still on the loan and if your spouse skips a payment, the lender can go after you.
When that happens, the lender doesn't care that you're not living there; the lender wants its money and you still have an obligation to pay it.
Even if your spouse pays the mortgage on time, it can be difficult, if not impossible for you to buy another house or make a large purchase until you're off the loan.
Lastly, if you continue owing interest on the home, think through capital gains tax. You may lose your rollover option since the house will no longer be your principle residence by the time you decide to sell it.