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Who keeps the house in a divorce?

This article is written by Hakyn Morrissey.

The TIAA group of companies does not provide tax or legal advice. This article provides information that may be helpful in understanding financial issues relating to divorce. We urge you to seek advice based on your own particular circumstances from a legal or tax advisor.

When going through a divorce, one of the toughest things to figure out is what to do with the family home. Do you think you want to keep your house but aren’t totally sure? This three-step process will help you make the decision that is right for you. We strongly suggest that you discuss this process with your legal and tax advisors.

The emotional role of the house in divorce

The family home often takes on a central, even mythical, role in popular culture. The home is the place where good memories are made and happy endings are the norm. Boomers had the crisply starched, black and white, center hall colonial perfection of Leave It to Beaver. Gen X adored The Brady Bunch ranch in all its avocado, orange and wood-paneled glory. Millennials fancied themselves inside one very Full House in San Francisco.

It’s only natural to idealize your home life, often the backdrop for your marriage’s happier times. However, it is important to get a handle on the financial implications that come with taking on sole ownership of a home and how emotional the topic of the family home can be during divorce settlement discussions.

Those emotions can be difficult because they come precisely when you need to be as objective as possible—when deciding who gets the house in a divorce where children are involved.

My clients and I use a three-step approach to help them make a clear, rational decision about keeping or letting go of the home.This process is geared toward bringing rationality and clarity to the decision to keep or let go of the home.

Take Jasmine for example. Jasmine and her husband Terrance have lived in their home for 15 years, with their two children. Their children were settled in comfortably – setting up a tree house in the backyard, biking to school and developing friendships with neighborhood children. When they first got married, the couple purchased the home from Jasmine’s family. During the divorce, Jasmine was emotionally attached to the home because it had family history and was loved by her children. She evaluated her finances and determined if she cut costs in other areas, she would be able to pay the mortgage on her house with a single income. Though she was emotionally invested in the house, it was also a sound financial investment. To determine how to go through the process of keeping the house during divorce and negotiate fairly with Terrance, Jasmine went through the following steps.

Step one: evaluating your reasoning for keeping the house during divorce

The first step in deciding whether to pursue the family home is to understand why, or why not, you want to take ownership.

Draw up a list of reasons to stay, focusing first on the practical. For example, proximity to school, a good neighborhood, special features that accommodate aging parents, etc. Once that is done, it’s time to consider more emotionally charged reasons, the most common of which include maintaining a sense of normalcy and continuity for your children. Remaining close to neighbors who are also supportive friends or the garden you cultivate in your “me time” may be other reasons to stay.

Step two: assessing the financial implications of keeping the house

Now it’s time to get down to the dollars: Can you feasibly finance the home? Assessing the upfront costs, including possibly paying your ex-spouse his or her share of the equity in the home, and the possibility of costs down the road, is the next step in deciding whether you should pursue ownership of the home.

It’s important to examine all of the fixed and potential costs associated with homeownership. This can lessen the impact of emotions on decision-making and planning. My clients and I run through a detailed worksheet that captures everything from mortgage payments to insurance premiums and real estate taxes to utility and landscaping bills (the “now costs”) plus everything that may need repairing or replacing over time, like roofs and HVAC systems (the “tomorrow costs”). We also include estimates for “nice-to-haves,” like kitchen renovations, room additions, and other discretionary items (the “maybe someday costs”).

Step three: acting on keeping a house during divorce 

Once you have made your decision, it is time to make your move. Step three comes once the decision has been made on whether or not you want the house. If the choice is “yes,” the question becomes under what terms that can happen – meaning, how do you keep your house in a divorce? This is where a tax lawyer’s expertise can be critical and often when the overall negotiating strategy is set. Will alimony be required to support homeownership costs and, if so, how much? Will a stipulation to sell the house once the kids are in college and split the proceeds equally strengthen your bargaining position? Consider the home compared to all of the other assets you’re negotiating to get the best deal.

What if you don’t want to keep the house in divorce?

Sometimes neither party will want to keep the house. The natural instinct and easier path in that scenario can be to sell and split the proceeds. But, timing is a big consideration, especially during downturns in the real estate market.

A market downturn may actually present a bargaining advantage if you plan on living in your home for a relatively long period of time. Although past performance is not a guarantee of future results, historically, home prices tend to appreciate over the long term. Gaining ownership of the home, if the sole owner can afford the operating costs, can turn it into a future asset and possibly even a financial success. Your team can help you determine the soundness of this approach in light of the overall asset, liability and cash-flow picture.

Who gets what in a divorce? Keep or give up the home? I work with my clients to ensure they have a handle on the financial issues and that they have the relevant records in order. There are many things you should think about when going through a divorce. I help make sure my clients have the financial information they need when making these financial decisions. Perhaps in no other situations is financial information more powerful.