Home ownership has been the cornerstone of the American Dream since the 1930s. Historically, owning a home distinguished the middle class and provided a sense of accomplishment and stability to the average American family. Today, it can not only be a family’s burden but the decision to keep or sell a home can also be a turning point in a divorcing woman’s financial future. Going through a divorce may well be the most emotionally charged experience during your lifetime. Consequently, you are also expected to make imperative financial decisions with limited emotional involvement. I know this sounds like a conundrum but understanding the consequences of those decisions will empower you to make informed ones, especially concerning your family home.
As a family law attorney, I frequently see women who have chosen to be a homemaker, work a part-time job or work minimal hours from home during their marriage. This flexibility allows for women to focus on their children and be available to them when their husbands may not be. Their husbands usually work at a well-established company and have continued to move up the ranks while married, with the continued support of their wives, of course. All the while, their husband’s retirement accounts are steadily increasing and, if they are lucky enough to still work for the government or a company that offers a decent pension, that value is increasing as well. On the other hand, since housing values peaked in approximately 2006 and have steadily declined since, the value of the family home has leveled off and although it may be one of the biggest marital assets, is not likely to be the investment you once thought it was. For many couples, the outstanding mortgage is higher than the fair market value of their home, commonly referred to as being “underwater”.
I began to understand how a mother identifies with the family home as a tangible form of stability and security for themselves and their children during the tumultuous time of divorce. By keeping the home and allowing their children to live there until they leave for college, women feel they are salvaging something for their children, and in some way, protecting them. I have seen women blindly focus on keeping the house in the division of assets and are willing to “buy out” their husband’s share of the equity by allowing their husbands to keep the retirement accounts, stock portfolios, stock options and/or waiving any claim to future pension payouts. What many women do not realize is that, in California, they have a legal right to one-half of these valuable assets earned during a couple’s marriage, even if it is solely in their husband’s name and through his employer.
While there is also risk associated with the stock or mutual fund holdings of a retirement account or 401(k), if you choose to split the retirement accounts, you can take your share and roll it over to a financial institution and have more control over the holdings. By using the services of a trusted financial advisor, you can evaluate what the best long-term financial plan is for you and determine your risk tolerance based on the current financial market. With a solid financial plan, you can expect your net worth to increase over time, whereas, if you keep your home in lieu of other financial and retirement accounts, your net worth will remain stable and only increase as slowly as the equity in your home increases.
If you decide to keep the family home, there are many things to consider. A house is not a liquid asset and you cannot unload it quickly in case of an emergency. There are many ongoing costs associated with the upkeep of a home, like mortgage payments, property taxes, homeowners’ insurance, homeowner association dues, monthly utility payments (gas, sewer, water, garbage, and electricity), exterior maintenance, one-time extraordinary repairs like roof replacement or mold repair, and of course, always expect the unexpected like water heater or major appliance replacement. It is imperative you take an independent review of your financial situation to evaluate if these expenses are affordable to you – what may be affordable today may not be when any child or spousal support payments end.
Typically, when you are awarded the marital home in your divorce, you are required to refinance the mortgage in your name only to remove your husband’s name. To refinance, you must qualify for the mortgage based on your established credit, your individual income, including any spousal support, and your home cannot be underwater. If your husband’s name is not removed from the mortgage, he may not be able to purchase another home in the future because the banks will look at the existing mortgage as his liability also. Similarly, if you are late with any mortgage payments, this could affect his credit and FICO score. Because of the liability it poses, you cannot hope your husband, or his attorney, to overlook the need for you to refinance and remove his name from this obligation. Find a trusted mortgage lender to work with to help you determine if refinancing is an option for you before you reach a settlement in your divorce.
Throughout your divorce, there are times you may feel defeated, overwhelmed and exasperated. During this challenging phase in your life, asking yourself the hard questions can change your future, for the better. Ask yourself: “Why do I really want to keep the house?” As a mother, you are justified in not wanting to uproot your children from the family home, but at what cost to your financial future? After my mother moved into her new home following my parents’ divorce and the sale of our family home, I gave her a single bud vase which had a painted proverb on it – “Home is where your Mom is.” By embracing the changes in your life, your children will follow your lead. The American dream did not include divorce and may, or may not, include home ownership for you at this stage in your life. I simply ask you to also dream of financial independence, stability and success after your divorce.
The information presented on this site is for informational purposes only and should not be construed to be formal legal advice or result in the formation of an attorney-client relationship with Puja A. Sachdev. The information contained within this website is general in nature and may not apply to any specific factual or legal circumstances.