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The marital residence. Not every divorcing woman sees it through the same eyes.
To many, the marital residence is much more than real estate. It’s a home, the hub of family life, a place loaded with practical, as well as sentimental value.
Others can’t wait to leave their marital house behind. They see it as the root of financial trouble or the center of a whole host of painful memories.
Of course, there are also those who adopt a more matter-of-fact approach. These women see the martial house as nothing more than an asset, part of the negotiation that eventually leads to a signed divorce settlement agreement.
Regardless of how you see it, rest assured of one thing: Your marital residence is likely to figure prominently in your divorce proceedings. Often, it’s the biggest asset a couple owns together, and usually, it comes “furnished” with all sorts of emotional trappings, as well.
Not surprisingly, many women would love to keep the marital home, especially if they have children.
Part of our job at Bedrock Divorce Advisors is to complete the financial analyses needed to help a woman understand if she can afford to do so, and if so, for how long.
If you’re going through a divorce and would like to keep your martial residence, please carefully consider the following questions:
Why are you interested in keeping the house? In many cases, the reasons are practical. Maybe you want to keep the house because it’s where you are raising your children. Maybe it’s near the kids’ schools or where you work. Or, maybe your house has been in your family for generations. Just be certain that your list of reasons isn’t dominated by ones that are purely emotional. When it comes to divorce, it’s important for you to Think Financially, Not Emotionally®, so that you’ll reach a divorce settlement agreement that puts you on solid financial footing. (Note: When children are involved, the parent who is awarded custody often stands the best chance of being awarded the house, as well. Most courts want to minimize disruptions to children and family routines, if at all possible.)
Can you afford to keep the house? This is an important question for women at every income level. You need to consider how expenses related to the house will impact your budget once you are single. Your ongoing costs associated with home ownership are likely to include mortgage payments, real estate taxes, utility bills, maintenance, repairs, landscaping and upkeep, etc. Even affluent women have to thoughtfully weigh their options. We have several clients who own marital residences worth millions of dollars, mortgage-free. At some point, though, these women will have to sell their houses. Why? Because it’s just not sensible for them to keep so much cash tied up in these relatively illiquid investments (which, in this economy, may not increase in value for many years).
Have you fully considered the true worth of the house vs. other assets? It’s important to understand that not all assets that are valued the same are actually worth the same. Here’s an example to illustrate my point:
Let’s say you’re trying to decide whether to keep a $600,000 bank account or a $600,000 house that’s completely paid off. You really love the house, and you’re leaning in that direction. Great idea? Maybe. But, you need to carefully assess how the house will impact your bottom line –both now and years down the road. Home ownership involves expenses, such as real estate taxes that need to be paid every year, upkeep and maintenance, fuel costs, etc. In addition, when you eventually sell your home you may be hit with a big capital gains tax bill. Let’s assume you bought the home for $200,000, and it’s now worth $600,000. Your capital gain is $400,000. Subtract your $250,000 capital gains exclusion as a single person, and you’ll have to pay capital gains tax on $150,000. At the current capital gains tax rate of 15 percent, that amounts to a $22,500 tax bill! (And chances are pretty good that those tax rates will increase in the near future.)
Once you complete this type of analysis, the cash may look like a much better option than the house.
What other living options are available to you? It’s only natural to feel a sentimental attachment to the place where you live. But don’t become so entrenched that you fail to recognize viable alternatives. Perhaps it’s a good idea to down-size. Or maybe, when it comes right down to it, you would actually prefer a different neighborhood? Odds are, even if you weren’t divorcing, you would eventually move from your current residence. Keep in mind that there are lots of different places you can call “home.”
Separating yourself from any emotional attachments you have to your marital house won’t necessarily be easy. But doing so will help you strategically manage your assets and develop a comprehensive plan for continued financial stability and security in the future.
Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com), a divorce financial strategy firm that exclusively works with women, who are going through, or might be going through, a financially complicated divorce. He also advises women business owners on what steps they can take now to “divorce-proof” their business in the event of a future divorce. He can be reached at Landers@BedrockDivorce.com.