We are in the midst of the Spring real estate season and this is the time during a divorce when one spouse will inevitably want to list the marital home for sale. Often times, the parent likely to be the primary custodial parent will offer resistance with the best of intentions, because he or she wants to keep the house for the kids.
I am often approached by a client who tells me that they are willing to give up other assets in order to maintain the marital home. This may be for a variety of reasons, but most often because a parent wants to minimize the trauma of the divorce on the children and believes that remaining in the home that they have grown up in is the way to accomplish that.
But, at what cost? While minimizing transition for the kids is an admirable goal, I find that in many cases, the person who wants to stay in the house does not truly understand the expenses associated with keeping the house, both now and in the future. So I try to make sure, sometimes with the assistance of a financial adviser, that my client is making a decision that really makes financial sense.
In the vast majority of cases, the person who will keep the house has to refinance, or otherwise assume a mortgage in order to remove the other spouse from liability for the mortgage and note as well as any home equity lines of the property. This means they have to be able to qualify for the entire amount of debt on the home by themselves. Plus, they have to pay all of the costs associated with the financing such as closing costs and points on the mortgage. Finally, they will likely have to pay the other spouse one half of any equity in the home. This costs can be substantial.
When paying the other spouse their equity in the home, sometimes there are other assets with which to offset the issue of paying off the other spouse. However, this is not a step to take lightly. Often, I see litigants give up all of their other liquid assets in order to keep the house. The result can be that there are no savings in case of an emergency, or in the event of loss of employment, something that is a real threat in the present economy. Other times, litigants will trade off their share of their spouses retirement to keep the house. This is a dangerous move, particularly if the litigant has traditionally been the non working spouse throughout the marriage and does not have enough years to accumulate retirement funds after the marriage is over. As we know from the current real estate market, we can’t count on the value of property to go up or even remain the same.
Finally, what are the costs going forward to maintain the house? When I have a client who is considering retaining the marital home, I take out the Case Information Statement ( that pesky financial form with budget information) and go through Schedule A with a fine tooth comb with my client. How much are the utilities really expected to be? What is the cost of cutting the lawn if you had previously relied on your spouse to do it for you? How old is the dishwasher, the washer and dryer and will they need to be replaced soon? Did you have a “handy man” type spouse who will not now be available for all those little repairs? What type of maintenance has been put off that is going to be an issue within the next few years and will the client have the funds to pay?
At the end of the day, I make sure that my clients carefully consider all of these issues before making the decision to keep the house. Kids are unbelievably resilient , far more so than we give them credit for. And, I do think that they will ultimately be happier in a home in which the parent is not stressed by financial issues related to keeping it.
EDITOR’S NOTE: As far back as September 2008, before the economy really declined, but in the midst of the decline of the real estate market from the highs in the mid 2000s, I blogged about whether it made sense to keep a marital home in a declining real estate market. It was beginning to make little sense then, and even less sense now, to offset/trade a depreciating asset such as real estate against cash or cash equivalents (or for that matter, any asset that was not depreciating). In February 2010, I blogged about the different options in distributing the marital home given the then (and still) current issues facing real estate. As there is talk that the real estate market will continue to worsen, serious consideration is required regarding what to do with the marital home. Eric S. Solotoff