Getting divorced involves making some very important decisions, one of the most important being whether to keep the family home. The decision is both financial and emotional, and carries long-lasting implications.
Many women find that the idea of holding onto the house feels comforting. It provides stability and continuity for you, and potentially your children, during a tumultuous time. But keeping the house also has the potential to put you in a tough financial position if you're not careful. Here are some questions to ask if you're considering keeping the house:
Can I afford to keep the house?
Nothing else matters if you can't afford the house. Mortgage payments, property taxes, and maintenance costs can quickly add up. You may have spousal support or a cash settlement to help you out the first few years, but that typically tapers off. You want to make sure you can afford the house on your own income, with enough money leftover to enjoy your life.
If you can't afford to keep the house with your current financials, you may consider what options you're open to to make it work- can you increase your hours at work? Are you open to taking in renters to help cover the mortgage? If it's important enough to you, there may be creative options to help you keep the home.
How will this impact me in the long run?
In many situations, keeping the house means giving up more of the retirement assets. This could leave you in a tight spot when you're ready to retire. Ask yourself honestly- will you be able to fund a comfortable retirement based on your current retirement balances and what you can contribute between now and retirement? Or will you end up house rich and cash poor later on?
What if I sell later?
You may be tempted to hold onto the house just for now, with the option of selling later, if you need to. While it may feel good to leave this window open, doing so can leave you responsible for a hefty capital gains tax down the road when you sell, especially if you've owned your home for a long time.
For reference, if you sell your home and file taxes as "married filing jointly" for that year, up to $500,000 in capital gains may be exempt from being taxed. If you sell your home in a year that you file "single" or "head of household", only $250,000 in gains are exempt. And if you move out and rent the home for 3+ years prior to selling, you lose the entire exemption.
If you're able to afford the house, and it doesn't kill your ability to retire, keeping the family home might be a great option for you!
But if doing so will leave you strapped for cash and stressed about money now and/or later, you may decide it's in your best interest to rip the band-aid off, and let go of the house now.
If you're considering or going through a divorce, please be sure to reach out to professionals for guidance and support. You can find financial tips for women going through divorce, including a list of professionals you may need here.