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Considerations in Keeping the Marital Home
“I am a marvelous housekeeper. Every time I leave a man I keep his house!”
- Zsa Zsa Gabor
We moved into our home in Rhode Island in 1993. I moved out in 2003.
I was completely attached to that very ordinary house. The funky yard I mowed, the fireplace where we gathered, and the kitchen where I made pasta by hand all seemed irreplaceable. Leaving was hard. Then my kids would show up at my little rental home and we would cook together, and eat all crammed into our little kitchen and it would all be OK. My kids talk fondly about those early days now, but at the time it was quite a life change.
It is a common practice among divorcing couples, to try to keep the marital home. Whether it is to keep stability in the lives of children or because there are emotional connections to the property, holding on to the marital home is often proposed in many property settlements.
Here are some considerations to ponder to help you make a decision that is right for you.
Why You May Want to Keep the House
The Children May Benefit
Children in general are better able to withstand the stresses of divorcing parents if they have environmental stability. Studies show that children who remain in the same house, the same school, and the same social network do better than those who are moved out of familiar surroundings.
Staying in the family home, though, is only one of several factors affecting a child’s post-divorce adjustment. The child’s age, temperament, level of parental contact and, most importantly, the intensity of conflict between parents, also affect their mental well-being.
You May Need Time to Build Income and Credit
If you don’t have a credit history, or are just getting back into the workforce, it may not be possible to downsize and purchase another property as you may not qualify for a mortgage. And if income is mainly through child support or alimony it may take six months to a year of payments before you could qualify for a new mortgage. A mortgage broker can tell you whether you or your spouse will have a problem in getting a new mortgage.
It Costs Money to Move
Between appraisals, agent’s commissions, and moving costs, not to mention any required improvements to prepare the home for sale, a lot of money can be spent going from one residence to another. If cash is tight, or you are forced to go into debt to get your home ready for sale, you may find it easier to hold on to the property for the time being.
It May Be a Bad Time to Sell
Real estate values, like other investments, are cyclical. There are times when they are appreciating and times when they are depreciating. If your home is worth less than when it was first purchased, or is worth less than the mortgage balance, it may be reasonable to hold off on the sale until prices recover. Of course if you are staying in the same local market, what you buy may also be more expensive. A real estate professional can help you assess your home’s value and trends in the local marketplace.
The Cost of a Mortgage May Be Higher than What You Currently Pay
Another consideration is the cost of money, i.e., your mortgage interest rate. If you have a super low interest rate on your mortgage it is possible a new mortgage of the same amount will cost you considerably more. A mortgage broker can tell you what price home you can afford based on your income and prevailing interest rates.
Why You May Want to Sell the House
You May Not Be Able to Afford It
Homes cost money … sometimes lots of it. The cost of a home goes beyond the mortgage. You need to consider property taxes, insurance, and upkeep. A new roof or heating system can cost thousands to replace, lawns need to be mowed, and driveways repaired.
Moving to a simpler and less expensive property, or even renting for a period of time, may be financially desirable if it means you no longer run up your credit card balance and can save for retirement and your children’s education.
You May Have Too Much of Your Net Worth Tied Up
If your intention is to own your marital residence in your name alone, you may need to give your spouse more assets such as cash and retirement accounts. As a result, it is possible to end up with most of your net worth in the bricks and mortar of your home, but little in cash for living expenses, emergencies, or retirement savings.
A divorce financial adviser can help you understand whether you have a reasonable balance of assets if you take ownership of the family home.
Common Approaches in Managing the Home in Your Settlement
Sell Outright and Split the Proceeds
Depending upon the amount by which your home’s value has appreciated since its purchase you may have significant equity in your home. By selling the property you and your ex-spouse would be able to use your home sale profits to settle your debts and each make a fresh financial start.
Usually one spouse remains in the house until it sells, and both parties agree to split the costs of preparing the house for sale. You both need to agree on a listing agent and a selling price. Once a buyer is found and the house is sold, generally the parties will split the proceeds of the sale after deducting all closing costs, property taxes, and agent commissions.
One Spouse Buys Out the Other and Owns the Home
If one spouse wants to stay in the marital home and desires to own the home outright, the title needs to change from joint name to the name of the spouse residing in the house, and the non-owner spouse receives their equity in the home either upfront or over time. There are three ways this is typically accomplished: The non-resident spouse is given other assets.
The other spouse receives assets in place of their equity in the home (assuming they are available). These may be retirement or investment accounts or other property.
The House is Refinanced
Since most jointly-owned property is supported by a mortgage also in joint name, the real estate mortgage usually has to be refinanced to remove the other spouse’s name. As part of that refinancing, the spouse that is awarded the real estate takes on a larger mortgage using the additional funds to pay off the other spouse’s interest.
A Payment Plan is Established
A spouse’s interest may also be paid out over time, with or without interest, as negotiated between the parties. This is approach is usually only used when there are no other assets that can be used to equalize the property division. The pay-off amount and period may depend on the respective incomes of the parties.
Joint Ownership with One Spouse Living There
Some couples may be comfortable owning the home jointly for a period of time after the divorce, perhaps until children graduate from school or the custodial spouse is able to improve his or her financial position. Only one spouse lives in the property but the home is owned and financed in both names.
There is ordinarily a written agreement which specifies the conditions under which this arrangement will go forward. It may contain language allowing residence “until the minor children reach the age of eighteen," with the home to be sold and equity divided at a later date. Sometimes there are additional contingencies, such as a provision that the agreement ends if the spouse who remains in the home remarries or cohabitates.
Lawyers advise that any such agreement make clear how the equity is to be determined and divided when the home is ultimately sold. It should also make clear how the costs of house payments, taxes, repairs, and maintenance of the home are to be split between the owners, and what will happen if those responsibilities aren’t met.
This article is excerpted from “The Financially Smart Divorce”
In determining child support, Rhode Island uses the Income Shares Model, which takes into account the amount of support that would have been available to the children if the marriage had not ended in divorce.
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