Divorce: Should You Ditch the House?

If you’re getting a divorce and you own a home, you could have mixed emotions about the house. With California’s housing prices, the marital home can be a huge asset, but it’s also an ongoing expense – think gardening, pool cleaning, HVAC inspections, plumbing maintenance, property taxes, homeowners’ insurance and so on. Since we’re talking about the marital home, not only is it a valuable asset, but spouses are often emotionally attached.

For many spouses on the edge of divorce, the marital home will soon be a source of marital conflict as the spouses try to hash out a divorce settlement. Here, we’re going to shed light on the topic and help you ask yourself the right questions so you can decide whether keeping the house is a good business move or not.

Looking at it From an Emotional Perspective

If you want the house, ask yourself, “Why do I want the house?” Each spouse has their own reasons for wanting the house. They may want it because it’s big and prestigious, because they poured thousands into the remodel, because the house has so many memories, or because they don’t want to take it away from the kids. What many of our clients say is, “I want the kids to stay in their childhood home for stability.”

Usually, divorcing parents want to keep the children in the same neighborhood, where they remain in the same school and stay close to their friends. If these are your reasons but you can’t afford the house, determine what you want exactly and consider your alternatives, such as a smaller home in the same neighborhood, a condo down the street, or even a rental around the corner.

“But, my kids don’t want to move!” If your children are attached to the home, it’s important to recognize and acknowledge their feelings, but that doesn’t mean staying is best for the family as a whole. If the best decision is to put the house on the market, you’re going to have to explain that to your children. As much as they’d like to, children cannot be making adult decisions. The decision to sell the house involves adult considerations, such as equity, monthly housing expenses, taxes, and other factors that are beyond a child’s comprehension. If a move is in your family’s best interests financially, you’ll have to lovingly validate your children’s feelings without staying in the house.

Looking at it From a Financial Perspective

Emotions aside, the most important thing to do is look at it from a financial perspective. What would it cost you to stay in the house? Can you afford to stay? The key here is to know exactly what it costs annually to live in your home. These costs include the monthly mortgage, utilities, real estate taxes, gardening, HOA dues (where applicable), minor and major repairs, and of course, the minor stuff, like calling a plumber, a tree trimmer, a roofer, and an electrician on occasion – the usual headaches.

By understanding the real costs of staying in your house, you’ll be in a position to understand if it’s the best, most affordable option. Before you consider asking for the house in the settlement, think about the home’s current condition. Does it have old plumbing that will need to be replaced? Do you have large, mature trees that may wreak havoc on your mainline? Does your backyard pool need to be completely redone? Is your home’s electrical system a nightmare waiting to give out?

If your house is older and needs a lot of work, these underlying issues will soon be all yours and they can affect your ability to keep up with the mortgage or get a nice asking price if you decide to sell. If you’re not sure about keeping the house, you can always hire a professional home inspector during the divorce to give you a clear evaluation of your home’s condition.

“If I move, will it cut my expenses enough that it’s worth it?” Maybe, maybe not. Downsizing is only worth it if you save money in the mortgage and with real estate taxes. If you’ve owned your home for 20 years, you may not even be able to get a smaller home for a comparable mortgage. Do you have loads of equity in your current home? Or, is your loan balance so high, you have virtually zero equity?

The above questions are critical. If you have over $100,000 in equity but a sizeable mortgage, it may make sense to sell and reinvest that money into a smaller home. Or, if you have loads of equity and a small mortgage payment, it may make sense to remain in the home. After all, you’re sitting on a goldmine as far as assets are concerned. If that’s the case, do you have another asset that you can give to your spouse that will make it a fair trade? If the only other big asset is an IRA or 401K, you may not want to trade a retirement account for the house if it leaves you with little to no cash, not to mention the depletion of your nest egg.

Our Questions for You

If you’re not sure what to do with the house, a lot of it will come down to financial factors. Since every situation is unique, it’s critical to get advice from a competent divorce attorney who has your best interests in mind. Is the house marital or separate property? Under California’s community property laws, should it be split as a debt or asset? We can help you evaluate your options, such as: 1) selling the house as splitting the proceeds, 2) splitting the house as a debt, 3) having one spouse buy out the other spouse’s interests in the property, or 4) selling the house at a future date when the real estate market gets better.

At Claery & Hammond, LLP, we’re dedicated to helping our clients choose the right approach in their divorce settlements, allowing them to address the unique needs of their families. To schedule a free consultation, contact our Los Angeles divorce firm today.