How to avoid costly errors relating to the house while in a middle of a divorce?
With divorce comes the weight of emotional difficulties and important financial decisions that need to be managed properly. One of the most important is the one relating to the house. In the emotional turmoil and worries concerning the assets that divorce brings, you particularly need clear, precise and objective answers about your real estate wealth. The decision making process will be easier once you are informed of what can happen with the mortgage, taxes and all issues related to the house. The advice of a third party, neutral and well-informed will help you make rational decisions rather than emotional decisions. The first question you might want to ask yourself is: “Do I want to continue living in the house?” Will your neighborhood be a source of comfort or painful memories? Do you prefer minimizing the disruption or moving to an area which would lead to a new beginning? Only you can answer these questions, but regardless of the answers, the financial impact must be considered in the decision making process. What can you afford? Does your “new” budget allow you to keep the house? Can you re-open your mortgage to negotiate refinancing? Is it better to sell and buy something else? What can you buy with your new budget? The goal of this document is to help you ask the right questions in order to make informed decisions that correspond to your new situation.
Four scenarios to know
It is important to understand the financial impact of each of these scenarios.
1. Sell the house and share the profits
Your main interest in this option is to maximize the selling price of the property. We can help you avoid the errors which owners often make in your situation, and which compromise the expected results. While you are trying to put some order in your situation, make sure you set the net profit you expect to earn. After the expenses related to the sale and after establishing how profits will be divided, what will be left? The division of profits might not be equal because the judgement of divorce might have set a different arrangement or the cash deposit was different or because the laws in effect related to family patrimony would influence the process.
2. Buy the portion of your spouse
If you have the intention of keeping the house, you will have to determine how you will honour your monthly obligations with one income. If you qualified for the mortgage with two incomes, it might be difficult to refinance with only your income.
3. Sell your portion to your spouse
If you leave, you can start over with some cash in your pocket. However, you have to know that the existing mortgage loan is still in effect and you will remain, with your spouse, because you both signed for the loan, jointly responsible. This responsibility towards the prior loan can prevent you from obtaining a mortgage if you buy another house even if in fact you are not legally the owner of the first house anymore.
4. Remain an owner
Some divorced couples will postpone the decision of the sale of the house for a certain time even if one of the spouses continues to live in the house. This situation will give you some breathing room and take away some worries, but requires vigilance given tax rules. Keep in mind that at the date of the sale, your situation relating to your income tax return might have changed.
When you decide to sell If you and your spouse decide to sell the house, make sure you obtain the services of professionals to get the most from this important asset. Your differences must be put aside and you should get involved in the brokerage contract.