A recent Wall Street Journal article caught our eye. It discussed one of the biggest issues for couples who are getting divorced — what should be done with the house jointly owned by both parties. Common sense would dictate a couple take one of two approaches — either the couple puts the home on the market and then splits the proceeds once it sells, or one of the parties takes over the mortgage — ostensibly with the other party being compensated for what was likely a significant investment over time.
As the article noted, there are issues with each of the common approaches to settling the marital estate question in a divorce.
As for selling a home, that’s not as easy or agreeable a solution as it might have been in past years. The article noted, “Selling the home can offer a clean break. But in many parts of the country, unloading a house due to a divorce could mean booking a loss if the couple bought the home recently. Home prices in some Western markets, such as San Francisco and Seattle, were down 10% or more in February from a year earlier.”
Depending on when a couple bought the home, they might still come out with a profit if they sell in the current market, though it might not be the windfall it could be if housing prices increase over time. It also might create a short sale situation in which the couple would have to pay the bank to make up the difference between what the home sells for and what’s left on the mortgage. That move gets a couple out of a mortgage and protects their credit, but it’s hardly ideal.
The increase in interest rates is having its impact on the housing market, and it’s definitely impacting the ability of divorcing people to refinance a mortgage and handle payments solo. The article touched on this: “Transferring homeownership to a single person can require a refinance at the current interest rate. That means the spouse staying in the home could be stuck with significantly higher monthly mortgage payments.”
One suggestion the article made for waiting out the current housing market situation is one we’ve talked about before: Birdnesting.
When you birdnest, as we explained in a previous article, the kids stay with the home and parents split up parenting time by moving in between the family home (when with the kids) or a separate apartment or other residence (when not with the kids). There are a few different ways to do this, including having a shared separate residence that the parents both use whenever they’re not in the family home.
As we noted in that article, it’s typically done when a couple is going through a divorce and preparing to put their home on the market, or to provide their kids a transitional period before introducing that level of change in their lives.
In that article, we did include the cautionary advice from an author who noted that any birdnesting arrangement that goes longer than a few months “risks giving your children an inaccurate message that [the parents] are working on reconciliation.” So know that while it’s not ideal for divorcing couples to maintain in the long term, and can certainly be even trickier once the divorce is final, it is one way to maintain a jointly-held mortgage.
The article did also observe that “a spouse who stays on a shared mortgage after a divorce might not be able to immediately qualify for another mortgage to buy a home somewhere else,” adding, “If the person who is responsible for the mortgage payment fails to pay, both people’s credit scores could be affected.”
If both parties are on the same page where finances are concerned, this might not be an issue. However, money can be a root cause of divorce — particularly how each party regards saving vs. spending. If you tend to be more frugal and you’re staying in a financial relationship with an ex who tends to be more spendy, that could create tensions that cross over into your co-parenting relationship.
As you’re preparing for divorce, you want to make sure that you have a clear picture of your financial status as well as your spouse’s. If your mix of assets and debts is a complex one, you may want to work with a financial planner as well as a lawyer — something that the Law Office of Lisa A. Vance has experience in setting up through our network of affiliated financial specialists. And even if it’s not, our initial consultation process will help you understand how you’re positioned financially in divorce and what’s most important to protect — including the best route to go with your marital estate.