Divorce is a challenging process, and one of the most significant decisions couples face is whether to keep the marital home. While rising interest rates are a major consideration, they are not the only financial hurdle. Here are some critical points to consider if you’re contemplating keeping the marital home in the wake of a divorce.
In recent years, real estate assessments in Colorado (and nationwide) have surged, leading to increased property values and therefore property taxes. If you plan to keep the marital home, be prepared for higher mortgage payments due to these increased assessments. This can significantly impact your monthly budget.
Homeowners insurance premiums have also seen a significant rise, keeping pace with higher home values and increased labor and construction costs for repairs. Evaluate whether your budget can accommodate these rising costs, as they are necessary for protecting your investment.
When weighing the decision on whether to keep or sell the marital home or not, work with a financial professional to understand the after-tax cost of your mortgage. Consider the capital gains taxes associated with selling the home, which could affect your long-term financial planning. While you’d be left with higher interest rates if you have to refinance the marital home into your own name, those might be partially offset by tax deductions on mortgage interest. A tax advisor can help you understand these tradeoffs fully.
Given higher interest rates, taxes, insurance, and the financial strain of divorce, you must have a substantial margin in your budget to consider keeping your marital home. Affordability on a single income is a key factor in this decision, as your payments might not be sustainable alone in this environment of higher property values. Therefore, future budget planning is essential. Understanding your goals and priorities now will help you advocate for divorce agreements that meet your future needs. Planning allows you to make informed decisions and avoid potential financial pitfalls. Evaluate whether maintaining the house aligns with your financial and retirement goals. Sometimes, selling the home and opting for more liquid assets that appreciate faster might be a better financial strategy.
It’s also important to budget for future increases in taxes and insurance. Leave enough money in your savings account to cover home maintenance and unexpected repairs. These factors can prevent financial strain down the line.
If you do want to stay in the marital home and you are over the age of 62, consider a Home Equity Conversion Mortgage (formally known as reverse mortgage). This could help keep you in your home or can even help you purchase a new home, either with no mortgage (principal & interest) payments.
Lastly, while financial factors are paramount, it’s also important to consider the emotional and practical benefits of staying in the marital home. Moving can be stressful and disruptive, especially for children. Remaining in the same school district and community can provide much-needed stability during a tumultuous time, helping everyone adjust better to the changes brought by divorce.
Deciding whether to keep the marital home involves weighing multiple financial, practical, and emotional factors. It’s a complex decision that requires careful consideration and planning. Consulting with a financial planner can help you navigate these challenges and make the best decision for your future.