To Own or Rent?
A divorce may be a good time to take a hard look at the realities of owning a house. The deflation of the housing bubble upset many of the assumptions associated with the so-called American Dream, particularly the axiom that the house is an investment, not just a place to live. (Indeed, during the bubble, many owners treated their homes as cash machines, making generous incursions into the equity in the form of loans they now regret.)
For the foreseeable future, the decision to buy or rent demands sharp pencil work, particularly because continuing appreciation in the value of houses remains uncertain. Once again, thinking house rather than home demands a cold eye. A man's home (that state of mind and habit of the heart) may be his castle; his house (so many boards and bricks, nails and wires, pipes and shingles on a piece of land) is a business proposition that not only runs out 20 or more years into the future, but also contains a myriad of variables and unknowns.
While local differences in the housing market must be considered, a reasonable argument can be made that for the foreseeable future, housing prices will continue to fall in many parts of the country.
"All current living generations in American have been force-fed the idea that home ownership is absolutely essential to financial freedom. It is an article of faith in the national religion. Question this and you are branded a heretic. Somehow, through an Orwellian twisting of the language and a corruption of the educational system, debt became wealth. The last two generations that would have disputed this have passed on," writes Eleua in Priced out Forever, a website.
A great deal of conventional wisdom surrounds home ownership, and like most conventional wisdom it is wrong. Many people believe a house is a good investment, but houses pay nothing until they are sold, and selling it is the only way to learn proof positive what is its worth. Aside from recessions, houses normally hold their value but don't appreciate much more than the rate of inflation. Houses cost money to own - maintenance, taxes, insurance, heating, cooling. "Good investments generate income, not expenses." Moreover, the tax deduction for interest expense as well as other tax credits for energy-efficient appliances often does not outweigh expenses. "Many homeowners find that even with the availability of mortgage interest tax deduction, their tax return isn't affected because they are better off taking the standard deduction."
Many divorced spouses, particularly homemaker stay-at-home mothers who took the marital home as her share of the property settlement, have found themselves "house poor," and that unloading the home in a depressed market brought them much less than they expected.
A spouse contemplating keeping the marital home may want to consider his or her employment and career. Not only do unhappy couples face a souring housing market but also a gloomy economy. The phrase job security now seems a quaint expression today. Many workers, both white- and blue-collar, now work with the shadow of the axe of unemployment darkening their days.
"The high unemployment rate also makes it more difficult for spouses to find jobs with sustainable salaries that will allow them to live independently from one another. Some married couples are discovering that when their assets are divided between the two of them, there may not be enough left over to pay the couples' debts, let alone begin new, separate lives," writes one observer. Divorce normally means the establishment of a second household and the two households, according to sources, normally cost 30 to 40 percent more than one -- a daunting prospect at the time of shrinking incomes and falling house prices.
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DATE OF SEPARATION – Depending upon the laws of the state of residence, the Date of Separation – called the DOS – has a profound impact on the eventual division and distribution of property and debt, including credit, pension benefits, and other marital assets. As of the DOS, the separated spouses are now in limbo legally and financially and remain so until the actual Date of Divorce. A great deal of money may be at stake. For example, one spouse may share responsibility for any debts incurred by the other; the value of a retirement plan or other marital asset, such as residential property, may fluctuate, often by thousands of dollars.
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