Should I Keep the House or Not? Asset Management Advice for Del Mar Residents Going Through Divorce, PART 4

This four-part article series poses a series of questions to help people going through divorce decide whether it is in their best financial interests to keep the house or to sell it and split the money.

Welcome to the final installment of this four-part article series on whether it’s a good or bad idea for you to keep the house post-divorce. So far, we have posed the following exigent questions to Del Mar residents facing this situation and the totally new asset management picture that comes with it:

1.    What does your house mean to you and could you perhaps find its virtues in another home elsewhere?
2.    How long do you plan on staying in your house post-divorce?
3.    Does it make financial sense to continue to own the house jointly with your ex?
4.    If you do opt to keep the home, what assets of yours would you have to sacrifice to compensate for your ex’s equity?

Let’s continue with two final questions you should be asking yourself if you’re considering keeping the house post-divorce.

“Should I Keep the House?”

Question # 5: Can You Afford to Keep the House and to Pay its Mortgage?

Image courtesy of Free Digital Photos

You may be seduced by your current low mortgage rates, but deciding to take the house in divorce begins a long and costly chain of events that could see you regretting this decision in the first place.

When one spouse takes the house, he or she will need to have the mortgage refinanced so that the other spouse’s name is taken off the mortgage agreement. This process costs money and then you’re facing new monthly payments that, at today’s interest rates, aren’t quite as favorable anymore. So be wary, say asset management experts in Del Mar.

In addition to refinancing, you’re also looking at the responsibility of being the only one who pays for the maintenance and upkeep of the property. This might become especially expensive if it has been months or even years since you and your ex put any effort into fixing and maintaining the house.

Keeping a house that hasn’t received any maintenance or upkeep in more than a year could end up being a catastrophic financial decision for residents. You’re not only inheriting a house that is falling down around you, but also all of the bills that come hand-in-hand with it. If you sense your marriage is on the rocks and want to keep the house, many Del Mar LPL financial advisors suggest that you begin the process of fixing and maintaining it while your assets are still shared.

“Should I Keep the House?”

Question # 6: Do You Understand the Tax Consequences of Keeping the House?

When it comes to tax, if you’re not in the know, you stand to lose a considerable amount of money.

Oftentimes, it benefits both partners to simply sell the home jointly while it’s listed under both of your names. If you have lived in a home for between two to five years before you decide to sell it, you can exclude $250,000 of its capital gain from your tax bill, and $500,000 if you sell it jointly with your ex, according to asset management law.

Image courtesy of Free Digital Photos

But, if you keep the house and refinance it so that you become the sole owner, you alone shoulder the capital gains liability and the cost of the sale. If your home has appreciated in value by more than $250,000, you will be responsible for paying tax on that excess, whereas if you had simply sold the house while it was under both of your names, the $500,000 exclusion would have saved you all of that money on tax.

This is something Del Mar residents should calculate and consider with the help of a financial advisor before making any major decisions with regards to home ownership.