One of the most common questions asked in a divorce is whether a client should keep or sell the marital home. Is this really that big of an issue? Yes, it is a very big issue as the decision to keep the marital home in a divorce could be one of the biggest financial mistakes made in the case. Too many times a client makes the decision to keep the marital home an emotional decision based on attachment or guilt. So, is keeping the marital home a big mistake?
Keeping the Marital Home Can Be a Mistake
The marital home may be a source of cash for you to use after divorce. The cash equity received from the sale of the marital home can be used to pay off debt and have a fresh start. It can also be used for an emergency savings fund or an investment fund for retirement.
The marital home may be more home than you really need. Ask yourself if you really need all that square footage and whether the annual cost to maintain is worth it to you. Keep in mind that it’s not just the monthly mortgage; rather, it’s the insurance, taxes, utilities, lawn service, homeowner’s association dues, etc. Also, you need to consider the cost of major repairs, roof, siding, windows, air conditioning, pool, driveway, painting, etc. as these will inevitably come along and you would need to be prepared for such a major expense. Last, you should also consider if you have the time to be a homeowner. If you weren’t the spouse who handled all the repairs or the hiring of repair people and you are now both a single individual and a single parent, do you have the time necessary to maintain the house and yard?
Selling the Home May Be a Good Idea
Selling the home at divorce allows you and your former spouse to share the expenses incurred in getting the house ready for sale. It also allows you and your former spouse to share the realtor fees and closing costs incurred for the sale. For a $1,000,000 home, realtor fees at 6% would be $60,000.00 as a shared expense instead of one incurred by you alone if you sold the home later.
Selling the home at divorce also affords you the opportunity to avoid the expense of major repairs and ongoing maintenance costs. If you underestimated your budget or overestimated the amount of money you would have available to spend each month, you may not be financially able to pay for the repairs and maintenance needed. This could result in deferred maintenance that you will then incur at the time of sale as you will need to get the home ready before listing it for sale.
Selling a home at divorce is usually the quickest, cleanest, and easiest route. This is because it allows both spouses to walk away from the asset rather than disagree as to who keeps the home. Also, the market determines the value of the home instead of both spouses arguing over its appraised value. Whatever the home sells for is its value. The spouses then share the equity so they can move forward with their new individual living situation.
There can be factors that complicate the sale. For instance, you may need to work out who will handle repairs and maintenance while the home is listed, and you’ll need to agree on a real estate agent to list the property. But usually, selling the marital home is going to be a spouse’s cheapest path forward even with the expense of closing costs.
There Are Some Good Reasons to Keep the Marital Home
Rent prices have greatly increased in the St. Louis metropolitan area over the past two years which may make renting more expensive than the cost of retaining the marital home. Depending on current mortgage rates, refinancing to buy your former spouse’s equity may result in a lower monthly payment if you had a mortgage with a high interest rate. This is where it would make sense to discuss the monthly costs of retaining the marital home with an experienced mortgage lender and your attorney to look at the long-term implications of keeping the marital home versus renting versus buying a smaller home.
If you rely on your neighbors for childcare or simply as a support system for you and your children, then that cost needs to be considered when deciding to keep the marital home. The cost of childcare may be more expensive than simply staying in the marital home with a higher mortgage payment after buying out your former spouse’s marital equity. So, the neighborhood support system may be a financial benefit that results in you keeping the marital home.
Interest rates are another important factor to consider with this strategy. Right now, the average fixed-rate 30-year mortgage rate is around 7%. If you secured a mortgage rate over the past few years, you may have a rate of 5% or lower. That means if you were to refinance your mortgage now, there’s a good chance your interest rate would be much higher on your new loan resulting in a higher monthly payment. You want to be sure you can afford this higher cost on your own before choosing this path forward.
Let a Judge Decide
If you can’t come to an agreement with your former spouse, the last option is to go to court and let a judge decide how to handle your shared property. This should be the last option. If you and your spouse are on speaking terms, then you should make every effort to sit down and discuss what to do with the marital home with one another. It’s most likely going to be in both of your interests to decide and agree on how to handle the home rather than having your attorneys fight it out in court and letting a judge decide.
Should you need the assistance of an experienced divorce attorney in Creve Coeur and O’Fallon or have questions about your divorce situation, know that we are here to help and ready to discuss those questions with you.