The following scenario plays out quite often as a couple is divorcing:
Wife has primary custody of the children and she wants to remain in the house after the divorce so that the children can maintain some stability, finish high school and graduate with their friends. Husband wants to sell the house and either receive his share of the equity and/or release himself from the burden of the mortgage. Who prevails when the couple has these competing interests?
Generally speaking if the children are within a few years of graduating from high school the parent who has primary custody of the children will be able to remain in the house until such time as the children graduate and go off to college. The thought is that in balancing the husband and wife’s competing interests the children’s best interests trump the husband’s desire to immediately get his money and get his name off the mortgage.
Of course, the parties can agree on any arrangement that they want. However, if the parties cannot agree there is a recognized preference to let the high school age children finish off their careers in their house.
If there are no children, custody is not an issue, and therefore both parties will have an equal right to remain in the house after the divorce. In this situation if the parties cannot agree on who will remain the house will be listed and sold, and the parties will split the proceeds, or alternatively, one spouse will buyout the other spouse’s interest in the property, usually through a refinance.
Does It Make Sense Financially To Stay In The House After the Divorce
It is one thing to resolve the issue of who is remaining in the property after the divorce. It is another thing to actually be able to afford to remain in the house after the divorce. To determine whether it makes sense to stay in the house post-divorce ask yourself the following questions:
Can I Really Afford This House?
If you have children and you are the parent of primary custody you will receive child support from your spouse. Also, if you work outside of the home, you will have your income from your job or business. You may also be entitled to receive monthly alimony payments from your spouse. These three streams of income may provide you with enough money to cover the mortgage and housing–related expenses.
However, as any homeowner knows home ownership is an expensive proposition. Beyond the cost to pay the monthly mortgage expense, real estate taxes in the State of New Jersey are the highest in the country. Heating and cooling a house is another large variable cost. Similarly, basic maintenance, particularly on an older house, can wreak havoc on a stretched budget. Roof repairs, HVAC repairs, structural repairs, lawn maintenance, snow removal, all of these ownership-related expenses can devour your monthly income stream. You can end up house rich and very cash poor. Once you’re divorced the financial backup of having another income stream is generally gone. Therefore, even if you want to remain in the house after the divorce you have to ask yourself the following questions:
Do I Have A Housing Expense Reserve Fund?
Aside from the monthly housing expenses detailed above, as a homeowner you have to be prepared for what happens if something major goes wrong with the house. Hurricane Sandy, the polar vortex, and other natural disasters have hit New Jersey with great force in recent years. If your house suffers a major loss, do you have the capital to rebuild it?
Am I Handy?
When you were married you may have relied on your spouse (or their supplemental income) to help fix things around the house. Now, it’s 100% your responsibility to fix things that go wrong, either by getting up on that ladder yourself, or paying somebody to do it for you.
Do I Have To Refinance To Buyout My Spouse’s Interest Thereby Increasing My Mortgage Payment?
If your spouse is not demanding that you buyout their interest then you will not see an increase in your mortgage expense. However, if your spouse is looking for a buyout of their interest, and you choose to refinance the property to buy him or her out your mortgage expense will be increased. You will have to do the math to decide whether it makes sense to try to retain the home if you have to buyout your spouse’s interest.
Is The House Appreciating in Value?
Houses in New Jersey have started to rebound since the 2008 mortgage crisis. However, the rate of appreciation is painfully slow. Your house is probably appreciating in value, but are you committed to stay in it for years to come to recoup your investment? If not, it may not be worth holding on to.
Do I Need All This Space and Can I Find Comparable Housing?
To answer these intertwined questions it may make sense to speak to a realtor and see what alternatives you have for comparable housing. In this market some clients have actually been able to find more space when they leave their homes and rent. Even if you’re not open to renting it still makes sense to take this time to explore all of your housing options. Particularly if your children are out of the house the divorce transition may be the best time to downsize your living space.
Am I Keeping The House For Emotional Reasons More Than Financial Reasons
The divorce process can be an extremely jarring experience emotionally and financially. This is so much more the case if you didn’t plan for the divorce and it was imposed on you by your spouse. One of the most disorienting aspects of a divorce when the parties are in a comfortable home is the realization that in the context of the divorce you may “lose” the house. The thought of going from a home to an apartment, or from a large apartment to a smaller apartment may feel like you’re life is going backwards. Your immediate reaction may be to fight for the home. But is this a wise move? Try to get an objective opinion from family and friends as to whether your fight for the house makes financial sense.
Am I Keeping The House But Giving Up Too Much to Keep The House?
This question is similar to the previous question about detaching emotion from the major financial decision of whether to keep the house. If you are desperate to keep the house for emotional reasons you may overstate its value, and end up negotiating away your rights to more valuable financial assets. If your spouse senses your desperation to retain the house he or she may leverage this knowledge to their advantage in your overall negotiations.
Your answers to the above nine questions will help guide you in your decision-making on the home. If you have questions about staying in your house after the divorce don’t hesitate to contact me at 201-731-3086, or e-mail your question or contact information. I have been helping people in northern New Jersey, primarily Bergen, Hudson, Essex and Passaic counties with these and similar family law-related issues for over 20 years. The consultation is free.