Note: I am not a financial advisor and the information in this article is not a replacement for a consultation with a certified CFA or CFP.
I’ve got “my mind on my money and my money on my mind” today, and I’m thinking about how I was able to afford to keep my house after my divorce and what I learned in the process. It might be helpful to you if you are trying to figure out how to create a two-house solution for your family and you’re trying to decide if you will be able to keep your current home.
How the home divvying happens
Your home becomes one of the assets in your divorce. It doesn’t matter whose name is on the mortgage or the title, or who has lived there longer (usually) or who put more work into renovating it. In the end, there is an amount that you still owe on your home and there is an amount that it is worth today, and the difference between those two numbers is what your home is worth in the divorce.
So let’s say your home is valued at $500,000 and you still owe $300,000 on the home. That means you have $200,000 in equity. $100,000 for you, $100,000 for your ex. If you want to keep the home, you need to pay out your ex half of that amount. In this case, that would be $100,000. So you have to give up your claim of $100,000 worth of assets. Cash, retirement accounts, brokerage accounts, etc.
You then inherit the mortgage, the house as-is, and the need to maintain the entire thing all by yourself (see my post on fixing my furnace when it went out this winter!) Which begs the question…
Are you sure you want to keep your home?
There were certainly things that I held onto with an iron-fist during our divorce, but for most of the two-and-a-half year process, the house Darth and I had shared with Belle and Bugg was not one of them. I thought I wanted a fresh start, a new place, a place that was only my own. I’d visited apartments and condos in the area, and I had a few options for where I would go.
Our house made me sad. Every room I walked into held memories of my family when we were all together. Because Darth had renovated so much of it, it felt like his house. The idea of living in it without him felt strange.
Plus, if I bought the house I would inherit all of the problems: the floors desperately in need of refinishing, the bathroom tiles that didn’t line up, the upkeep and maintenance of the furnace. It seemed like a lot during a stressful time, and the thought of a fresh start, or of renting, seemed easier.
What changed my mind
But then things changed. For months I believed there was no way I would stay in our family home once we weren’t a family anymore. But then things changed. And once I started thinking differently about our home, I realized that it could be a valuable asset:
- Our house was across the street from our kids’ school. We had no intention of moving them to a different school. It was a pretty nice commute in the morning.
- Our neighbors are awesome, and Belle and Bugg have literally grown up surrounded by instant friends.
- We bought the house when mortgage rates were at an all-time low, and the interest rate on the mortgage is half of the rates available today.
- For various reasons, my name was and is the only one on the deed, and the mortgage was completely under my name. This means I got to keep that great mortgage rate – no refinancing necessary.
- When I saw the amount I would end up with if Darth bought me out, it seemed so small. Not even enough for a down payment on a new place. But if I bought him out, I would have a lot more house, and a house payment that was similar to what it would cost me to rent in the same neighborhood.
And finally, time passed. I was able to look at the house and see not the past, but the future. I could see what I wanted to do with the house once it was mine. I imagined a day post-divorce when I could spread myself out on the living room rug and reach my arms and legs in every direction and say: this is all mine. I did it. (Look for a future post on how I made my house my own).
How I did it
First off, I got a raise. I had applied for a promotion at work during our separation. Without the bump in pay that I received, I never would have been able to afford the house on my own.
Second, I made an appointment with our financial advisor. He’s not somebody we hired – he’s just someone who came along with our bank. And he gave me tools I’d never suspected, because none of the websites I’d been searching gave me the same advice he did.
He advised a home equity loan. That one wasn’t so much of a surprise. It was a bit of a back-door solution. Because I already had the house in my name, I could request a home equity line of credit on our joint asset to pay out my portion of it. Why do this rather than exchange other assets? Those assets were invested, and I would lose significant time in the market (and lots of money to taxes) if I pulled money out of retirement or brokerage accounts.
His second suggestion blew my mind: he told me I could take a loan out of my retirement accounts. What??? Yes! You can take a personal loan out of your retirement account monies, with no penalty. You pay the money back with interest, but YOU get all of the interest! (The interest is meant to make up the difference with what you would be losing in the stock market).
Without the cash on hand to buy out my ex, these were the only options that made it possible, and that protected my retirement and savings for my years as a single, Fierce Tit of a mom.
Was it the right decision?
I remember reading lots of articles like this one online during the years that we went through our split. I expected to find an answer in one of them. And I didn’t. I also remember the day when I looked at the numbers and realized that the only answer that would give me peace was to buy out my ex.
I still don’t know if it was the “right” decision. My HOA fees have doubled in the past few years and I sometimes wish that I had taken the cash and run, rented a place for a few years, and gotten back on my financial feet.
But other times I’m glad that I didn’t rent an apartment somewhere else in the neighborhood, slightly smaller than our home and farther from the kids’ school. A place that would be temporary by design and never quite feel like home.
What I wish I’d known
- Feelings change. My house doesn’t make me sad anymore. I’m so proud of it and the home that it has become.
- Kids adapt. My kids love both of their homes. It’s not the place that matters so much as the parent.
- There are a lot of people willing to give good, impartial financial advice – for free! I wish I had asked for help and advice earlier and more often, instead of thinking that I knew all of the possible solutions.
What I’m grateful for
- I am so grateful that I only put my name on the mortgage and title! Full disclosure: the reason I did this was to protect my then husband’s credit. We were married when we bought the house, but we were only using my income to secure the mortgage. At the bank, they told me it “didn’t really matter” whether I put his name on the mortgage and title or not. Well in the end, it mattered a LOT! (To play the devil’s advocate, if my name had not been on the mortgage, that would also have made the decision easy. There’s no way I would have refinanced at such high rates. Moral of the story: prenup).
- My financial advisor! I see him every year now. It’s like going for an annual physical. I get a money checkup. There’s no cost, and he always gives me some great bit of advice that I never would have thought of on my own.
- We’re all doing well. Belle, Bugg, Darth, me, Lily, and both of our homes.
If you want to stay in your home, it might be possible
If you take anything from this post, I hope it’s that there are options that might be there that you’d never considered before. What I hope to offer here, as always, is some information and experience to help you work through your own options and choices. Remember: there’s no “right” choice, there’s just the choice you make right now. And it will be the right one.
And in a year or two, you might make another decision. And that doesn’t mean this one was wrong, it just means you had to make a different choice for a different now.