Divorce Series: Should you keep the house? 4 things to consider

divorce decreeIf you are facing a divorce, you will have to sort through the debts and assets you share with your spouse. One of the hardest decisions can be landing on “who gets the house?” and getting the property into the right person’s name.  As a mortgage lender, one of the ways I can support my clients through this transition is by partnering with them to evaluate whether keeping their home is an option and what’s required to obtain financing. Over the next few weeks, I will be sharing insights regarding the process.

There are two key terms that are consistently used:

  • Divorce Decree This is the final document issued by the court and signed by the judge, that makes the divorce final and details the specifics (e.g., child custody, palimony, division of assets) associated with it.  The decree will also include obligations that you, and your spouse, have to each other. This document will be used by you and your lender to demonstrate to creditors that you are no longer accountable for certain debts and/or your ex-spouse’s activities.
  • Community Property If you live in a community property state, like Texas, all items acquired during the marriage belong to both spouses regardless of who purchased or earned them. This includes things like pensions/retirement funds and any property. The divisions of these assets, and debts, has to be deemed as equitable by the court who may change who receives what based upon the circumstances involved (e.g., child custody, earning potential). If you and your spouse purchased your home together, you will both technically own the property until the divorce decree issued.

Think about these four things when you contemplate whether or not you want to keep your current home:

1. Do you really want the house?

This is a time to get practical around whether it serves your interests and long-term needs to keep the house. Homes come with costs outside of taxes, insurance and paying the monthly bills. Will you be able to afford the long-term maintenance items such as upkeep and major repairs (e.g., AC units, new roof, exterior painting) in addition to your planned monthly expenses? Are these the kinds of things you want to take care of or would you better off in a townhouse where exterior maintenance is managed for you?

2. Do you qualify?

If you will be receiving child support, and historically have received no or little personal income, you will need to demonstrate your ability to keep up with the payments autonomously. The baseline lending guidelines that lenders use are the same in this area, although they will often feel more stringent than what you have experienced in the past during a purchase or re-finance.  I recommend meeting with a mortgage lender to walk through your particular situation as there are very specific nuances that must be taken into account. You shouldn’t be worried about having all the answers (e.g., child support, who will get house). Part of the reason to talk with a lender is to better understand your options so you can make the best choices possible.

3. Should we transfer ownership before or after the Divorce is Final?

While you can do it either way, I recommend shifting any ownership between spouses prior to the Divorce Decree to provide a level of credit protection. This moves the financial responsibility to the person who wants the house, and removes the responsibility from the other spouse while waiting for the divorce to go through.  If you wait until after your divorce is final to shift home ownership to a single spouse, it can create some issues downstream if your or your spouse don’t meet the commitments outlined in the divorce decree.

4. Pay attention to the details:

Tracy Horne, SVP/Branch Manager at Republic Title, says, “Make sure the final decree identifies the property AND legal description-and awards the property to one party while also divesting the other party of ‘all rights, title and interest’ in the property.”  According to Ms. Horne, it’s also key to make sure that a General Warranty Deed is executed at time of divorce. Otherwise, when it’s time to sell, the home-owner will have to involve the ex-spouse. If the ex-spouse is not cooperative, it may require you to make your divorce decree public which would be less than ideal for many folks.

A divorce can be a difficult situation. Let me help ease some of the burden by demystifying the options available to you if you are considering shifting ownership of your home to you or to your spouse. Please call me at 214-52-9622 to talk live or set-up a time to meet in person.

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