Divorce and Real Estate Values
Divorce is no easy matter. Now plummeting home values and sluggish real estate sales have made divorce even more difficult.
Gone are the days when couples fought over ownership of the house. Now they are fighting over who will be saddled with the burden it carries. We see more clients remaining married, if only temporarily, simply because they cannot afford to go their separate ways.
There are several ways in which this tough housing market affects divorcing couples.
If the value of a couple’s home has fallen below the amount owed on the mortgage, neither spouse wants to be burdened with the liability. If one spouse wishes to keep the home, refinancing the mortgage to absolve the departing spouse of the responsibility for part of the debt is getting increasingly difficult.
Complicating this already difficult situation is the fact that few divorcing couples get along well enough to work in unison to minimize their losses. Most often, they are unable to agree on a course of action, which can lead to an even bigger financial mess.
Before the onset of this current economic slump, divorcing couples battled over who would keep the home. Specifically, women fought to keep the house in which the children were/are being raised. However, even in rosier economic times, this was not always wise, particularly if her income alone was not enough to cover the mortgage, taxes, and other carrying charges.
So what can you do?
The most important thing is to pay close attention to your home’s value when you and your spouse divide the assets. It is best to get a formal real estate appraisal instead of simply guessing what the resale value of the home may be, especially considering the current weak market. If the value is skewed, the entirety of equitable distribution of marital assets and liabilities will be distorted.
It may also be necessary to sell some of your investments to generate funds to pay off the mortgage and allow each of you to move on.
If you wish to stay in the home after the divorce, take a long, hard look at the ongoing maintenance costs associated with staying there. No longer having two incomes and two people sharing expenses can make the home a long-term financial drain instead of an asset.
