DIVORCE ...What You Need to Know About Your House, Your Mortgage and Taxes!

DIVORCE ... What You Need to Know About Your House, Your Mortgage and Taxes

PLEASE NOTE:

The material contained in this article is for information only.

It is not intended to replace individualized legal advice. We

strongly recommended you seek professional legal counsel for your

legal issues.

HOW TO AVOID COSTLY HOUSING MISTAKES IN THE MIDST OF A DIVORCE

Divorce is a tough situation which opens up many emotional and

financial issues to be solved. One of the most important

decisions is what to do about the house.

In the midst of the heavy emotional and financial turmoil, what

you need most is some non-emotional, straightforward, specific

answers. Once you know how a divorce affects your home, your

mortgage and taxes, critical decisions are easier. Neutral, third

party information can help you make logical, rather than

emotional decisions.

Probably the first decision is whether you want to continue to

living in the house. Will the familiar surroundings bring you

comfort and emotional security, or unpleasant memories? Do you

want to minimize change by staying where you are, or sell your

home and move to a new place that offers a new start?

Only you can answer these questions, but there will almost

certainly be some financial repercussions to your decision

process. What can you afford? Can you manage the old house on

your new budget? Is refinancing possible? Or is it better to sell

and buy? How much house can you buy on your new budget? The

purpose of this article is to help you ask the right questions so

you can make informed decisions that will be right for your

situation.

4 OPTIONS

You have 4 basic housing options when in the midst of a divorce:

1. Sell the house now and divide up the proceeds.

2. Buy out your spouse.

3. Have your spouse buy you out.

4. Retain your ownership.

It’s important for you to understand the financial implications

of each of these scenarios.

1. Sell the House Now and Divide Up the Proceeds.

Your primary consideration under these circumstances is to

maximize your home’s selling price. As you work to get your

financial affairs in order, make sure you understand what your

net proceeds will be - i.e. after selling expenses, and after

determining what your split of the proceeds will be. Note that

the split may not be 50/50, but rather may depend on the divorce

settlement, the source of the original downpayment, and the

legislative property laws in your area.

2. Buy Out Your Spouse.

If you intend to keep the house yourself, you’ll have to

determine how you’ll continue to meet your monthly financial

obligations, if you now only have one salary. If you used two

incomes to qualify for the old loan, refinancing on your own

might be a challenge.

3. Have Your Spouse Buy You Out.

If you are the one who is leaving, you have the opportunity to

start again in new surroundings with cash in your pocket.

However, be aware that if the the old home loan is not

refinanced, most lenders will consider both you and your spouse

as original co-signers to be liable for the mortgage. This

liability may make qualifying for a new mortgage difficult for

you if you decide to purchase a home, even though you won’t have

legal ownership.

4. Retain Joint Ownership.

Some divorcing couples postpone a financial decision with respect

to the home and retain joint ownership for a period of time even

though only one spouse lives there. While this temporary

situation means you have no immediate worries in this regard,

keep your eye on tax considerations which may change from the

time of your divorce to the time of the ultimate sale.

WHEN YOU DECIDE TO SELL

If you and your spouse decide to sell your home, it will be

important to work together through a professional to maximize

your return. Differences aside, you both should be present when a

listing contract is put together. Both of you should understand

and sign this contract, and both should be active in the ultimate

negotiations.

WHEN YOU BUY YOUR NEXT HOME

Use the proceeds from your previous home or buy-out to determine

an affordable price range for your next home. Maintain a clear

focus on getting the right home to suit your new situation. You

may wish to review with an agent who offers a house-hunting

service to help find a home that matches your new home-buying

criteria.