Are you finding yourself in a desperate search of what to do in the midst of your divorce? You’re not alone. In fact, the divorce rate in the US is somewhere between 40-50%. Despite its frequency, divorce is not easy to go through. It’s often accompanied by a whirlwind of emotions that make it difficult to think clearly and make logical decisions. We wrote a previous article regarding this challenge and we provide general advice and tips. In this post, we’re going to focus specifically on the question of keeping or selling the house.
Keeping or Selling the House: Which to Do?
The best place to start making this sort of decision is with objective information. And for that, we turn to the numbers.
Numbers Don’t Lie
It’s typically recommended that individuals going through divorce seek counsel from a financial planner or CPA. Of course, not everyone prefers this. But it’s a good starting point if it’s within your budget.
Your financial situation is changing quickly, so having a professional guide you along can be very helpful. This is especially important if you were not the person who handled finances in your past relationship. However, we realize that not all situations afford for these resources. Even without a professional, there are some basic financial guidelines that will help you see the picture clearly.
The general rule of thumb used by financial planners and banks is that housing costs should not exceed 35% of your total gross income. Sometimes people mistake housing costs to mean just rent. While rent is included, there is more to think about yet. Make sure to factor in other costs, such as homeowner’s (or renter’s) insurance, property taxes, HOA fees, utilities, TV/internet, etc. Just like everything in life, this breakdown can vary depending on your situation. For example, if you have a brand-new car that is paid in full, maybe you can afford a bit more for housing. On the flip side, if you have an unreliable car or a car that has high monthly payments, maybe you should account for lower housing costs to be safe.
So, take some time to sit down and analyze your current situation. With your income alone, do the costs associated with keeping the family home fall within that suggested percentage?
Do What’s Best for the Family
So you’ve done the math, and it turns out your housing costs are going to exceed the maximum 35% recommended threshold. It’s probably best to not keep your home and look for something more affordable. Your heart may disagree, but you have to remind yourself that you need to do what’s best for you and your family. That includes both the emotional and financial side of things!
Though keeping the kids in the same school district or in a familiar home may seem most important, ask yourself these questions:
What makes the most sense for them based off of the numbers? Is it worth it to stretch yourself thin by getting a second job just to keep them in the house? Or will your ability to be present for them during a difficult transition be more beneficial? Is it worth keeping the house and risk missing payments? Does your ex want the house? Is it worth a fight?
Kids with cooperative parents do much better during the divorce than parents who argue. These are all questions you should ask yourself. Though you may feel attached to the house, at the end of the day, you have to do what makes the most sense financially.
Keeping the home with the uncertainty of how you’ll continue to cover routine and unexpected maintenance costs puts you in a position to potentially still have to sell the home in a few months. Would you rather live with the uncertainty that you can afford to live somewhere or be comfortable and secure in something more affordable?
Selling the House
Long story short, if you want the house and can afford to stay, that’s great! But if you can’t afford it and your spouse doesn’t want it either, it’s probably time to sell. If you decide to take that route, it’s best to sell before the divorce is finalized for a couple of reasons…
- Won’t have to worry about refinancing for an individual or trying to get your ex off of the title and mortgage account.
- Take advantage of $500,000 in capital gains tax exemptions versus only $250,000 if you are single.
- Split the profit evenly and use it to fund a down payment on a different home or rental. You can also then split more useful assets (like cars and furniture) evenly in the divorce proceedings, which may set you up for a smoother transition.
If you wait for the house to sell before finalizing the divorce, it may take some time. In some situations, divorcees may want to expedite the process to be able to move on from their ex. In this case, we may be able to help. We provide cash offers for homes, which generally allows us to complete the process and for homes within 7-14 days. If this is something you may be interested in, click on the green side bar and we will contact you within a few days to discuss potential options. Or click HERE to read more about selling to an investor!
At the end of the day, no only you can make the decision about whether to stay or sell. However, we do hope this information was a helpful reminder that decisions made with logic will prevent more pain for you down the road. Please remember this information was not created to provide you with advice for a specific situation. If you are in need of guidance, please reach out to your local financial planners or legal counsel.