Going through a divorce is exhausting. You’re making major financial decisions while you’re emotionally drained. You’re also juggling your regular daily obligations including work.
One of the most significant financial assets you’ll be considering is your house. But before you agree to keep your house as part of your divorce settlement, look at the following items:
1- Mortgage Pre-approval: This step will make sure you can refinance your house under your name. The pre-approval process is more detailed and reliable than being pre-qualified. If you keep your house, your settlement will require you to take your ex-spouse’s name off the mortgage. To do that task, you’ll need to refinance your home loan. If you don’t have earned income, then you may not qualify for a home loan. It’s better to find out this information BEFORE you sign your divorce settlement.
2- Property taxes: Find out how much your property taxes are and the due date. Some cities have an additional tax. Also, you may qualify for the homestead exemption. Once you know how much your property taxes will be, check your finances to make sure you can afford it. If you are escrowing, estimate how much you will owe at closing (that’s where knowing the due date will come in handy).
3- Home insurance: Calculate how much home insurance you will need. Depending on your property, you may need an umbrella policy (e.g., if you own a pool). Depending on your property location, you may need additional coverage (e.g., flood). Verify you can afford this expense as it is required for your mortgage.
4- Regular maintenance: List all regular maintenance expenses. Some expenses may be paid monthly; others may be paid annually. Based on your income, determine if you can afford these expenses.
5- Major replacements/maintenance: Create a property maintenance schedule for your house. This schedule will list all upcoming major replacements/maintenance with estimated costs and timeframes (e.g., next five years, next ten years). Major replacements include items such as roof, appliances, hot water heater, air conditioning, etc. Include major maintenance items such as repainting the exterior of your home. While you don’t need to pay for these items now, you want to be aware of how much these items will cost you to prepare for future expenses.
6- Unexpected repairs: For those unexpected repairs, you’ll need money to pay for them or at least cover your home insurance deductible. Ideally, you’ll want to have an emergency reserve in the amount of at least six to nine months of your expenses.
Part of the divorce process is making major financial decisions. While it’s normal to want to keep your existing house, especially if your children are young, it may not be a wise financial decision. Going through the above items will help you realize quickly if you can afford to keep your house. Minimize financial stress in your new post-divorce life and make the tough decision before you sign your divorce agreement.
ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA™, RICP®,CRPC®, is the Founder of Transition Planning & Guidance, LLC. Life is more than money. It’s about living the lifestyle you want and can afford. For that reason, Niv consults with clients on money, life, and work. Her approach capitalizes on techniques she learned throughout her career, including as a management consultant, executive recruiter, and financial advisor. Her services include developing spending plans, comprehensive financial plans, divorce financial reviews, retirement plans. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me.’”