Divorce feels as though everything you thought you knew about your life and your future is suddenly flipped upside down. It can be a struggle to make sense of the pieces that remain. It’s common to want to stay in the house and retain some semblance of normalcy. While it seems like you are clinging to stability by staying in the family home, be aware that it may also be a very costly mistake.
It’s important to understand your reasoning for wanting to stay in the house. Is it because you’re trying to hold onto a life that was? Is it because you will have sole custody and you want to keep your children in the family home? Is it your ego and you believe that if you keep the house somehow you are better off than your ex? It is fine to place importance on your emotional reasons, but letting your emotions rule you is not the best way to make financial decisions.
Now, let’s talk numbers. Your decision also has to be made using your post-divorce budget. A house is somewhere to live. It does not provide any income to support your lifestyle. If you and your spouse lived there for a long period of time, it’s likely that there is a fairly large chunk of equity trapped in those walls. If you are awarded the home in the divorce, it could be the largest asset in the settlement. Let’s assume the home has a market value of $400,000 and there is $300,000 in equity. As marital property, half of that equity is yours, but the other half is rightfully your spouse’s. So if you keep that home, then a full $300,000 of your settlement will be tied up in that property. That same sum of money could generate over $13,000 of yearly income if it were invested conservatively. We also haven’t considered the costs of upkeep and maintenance that will increase the income necessary for you to make ends meet.
But wait! There’s more. If you are going to need this equity to support your retirement down the road, then it is important to consider the projected growth rate on property. As we just went through a two-decade housing boom, it’s likely your average return could be quite low or even decline in the short term. You may need the equity tied up in the home to be able to earn a higher return to meet your retirement goals, so having the cash to invest in a portfolio that can grow at a higher rate long term return will likely benefit you more and may outweigh the emotional reasons you want to keep the house. This scenario would fall under financial and investment advice, and it is unlikely your lawyer would bring this forward for consideration during settlement discussions, as a lawyer is not qualified or allowed to provide financial advice. This is a perfect example of when to consider the option of a mediated or collaborative divorce with a neutral financial advisor to help.
Divorce is difficult but you also have an opportunity for a fresh start and getting off on the right financial footing is essential to your future. To be certain that you understand all of the ramifications of any property settlement you are considering, bring a Chartered Financial Divorce Specialist (CFDS) to shine the light onto some of these issues and potential options. You only have one chance to get your settlement right. Take the time to gather information and make sure you are doing the right thing. It will be the best decision you ever made.