Should I Keep the House?
I’m Divorcing. Should I keep the house?
I have been married 2 years and have 2 children with my wife. We purchased a home less than a year ago and each earn similar incomes. Unfortunately we both have to contribute to be able to pay the mortgage. We bought the home specifically to be in the kids’ school district. My wife and I do not talk anymore and it has made things incredibly difficult on the children since they are living with us. I want to move out but I cannot afford to pay rent and on the mortgage. What can I do?
The first thing I recommend is taking a step back and breathing. Divorce is never easy and finances only compound the stress and anxiety associated with divorce. It is extremely difficult to deal with the end of your marriage, the changes in your family dynamic, and the financial ramifications of decisions you made while married. You have options.
One of the first major acquisitions many young newlyweds make is a family home. Nothing says everlasting love like a huge financial obligation. While there are many great benefits to homeownership, there are many negative aspects as well. The family home is generally a family’s greatest asset and debt.
One of the most difficult questions that most families face during a divorce is the reduction in overall income. When married couples purchase a home, most do so based on the combined household incomes. This is not always the case, but if both parties are working the combined incomes will be used to determine the loan that the parties qualify for, along with how the parties split that cost. Regardless of how that cost is paid, as long as the parties purchased the home during the marriage and do not have a prenuptial or postnuptial agreement, the home is a community asset. Arizona is a community property state, which means that any property or debt acquired during marriage, including the home from our discussion, is community property and needs to be equitably divided.
Now that you know the home needs to be divided, what do you do in the meantime?
The answer is: it depends.
If you cannot afford to move out and your relationship with your spouse is negatively affecting the children, you should have a difficult conversation with your spouse. I generally tell my clients to schedule a meeting at a coffee shop, restaurant, or some other public place so that the meeting is safe and hopefully constructive.
Discussing what happens next is always difficult. Oftentimes individuals have strong emotional attachments to the family home, which make these decisions even more difficult. No matter how attached you each are to your home, it’s critical to have a realistic sense of whether either of you can afford it. Giving up everything else to keep the home, and then find that you still can’t cover the mortgage, property taxes, and maintenance, may create more serious financial trouble.
One of the biggest mistakes families make is to simply have the residential (custodial) parent keep the family home since the children are living primarily with that parent. This is not always the best option. Remember that the mortgage is not the only expense that a home has throughout the year. The property taxes and regular maintenance are regular expenses. This does not include anything that needs to be fixed (repairs). It is importance to factor these expenses in and see if either can afford the home on your own. If not then you will need to refinance the property, sell the property, short sell the property, or let it go to foreclosure. There are serious consequences to each of these options that need to be explored prior to any decisions being made.
If it is impossible for the parties to continue to pay the mortgage, you may consider listing the property for sale and splitting the proceeds and or debt from the sale. If the home is relatively new, this can be difficult as there is not likely to be much equity in the home. The thing to remember is that even if you only “break even” on the sale you have reduced your overall monthly expenditures.
If one party can afford to keep the property the home will likely have to be refinanced so that the other party can be removed from the loan. This is dependent on the lender so checking with them is very important.
If neither party is able or willing to continue paying on the property, short selling the property or going to foreclosure may be the best option. These options have serious credit consequences, so I recommend researching both options extensively prior to choosing either.
Remember that while you may have selected that particular home due to the school district, there are other homes, apartments, and other housing options located within the same district as well. There are also other school districts you might want to consider. Financial constraints often dictate the choices that parents make. Unfortunately the reality is that you may not be able to reside in the district that your would like to. That does not mean that your child will not have great educational resources available to him/her.
That is all well and good but what do I do right now?
If you have family or friends nearby you may want to ask them if you can stay with them temporarily until you are able to determine what your next step is. This would eliminate the anticipated rental or new mortgage payments and allow you to continue to pay your mortgage (which you are still obligated to pay by the lender).
Why should I move out? It is her fault we are getting the divorce.
Arizona is a no fault state. This means that the Court does not care why you are getting divorced and it will not have an impact on property division.