When to let go of the house?
Emily didn’t want to sell the house. As she and Mike discussed the divorce though, they couldn’t find an avenue to manage the creation of two households out of one with so much of their financial resources locked up in their house’s equity. When Emily first called me, she wanted to gather information. How much to get the house ready to sell. What would be the likely sales price, and after paying off the mortgage and other costs of selling, what would the proceeds be. I gathered the information for her to help her make a sound decision.
When Jessica talked to me about her divorce, the same problem arose. She wanted to figure out a way to hold on to the house, and to also extricate herself from a marriage that had become toxic over the years.
Emily and Jen both swore that they would not give up the house. Both women had been both primary parents to their kids, and the main breadwinner for the family. If they couldn’t keep their family intact, they could at least keep their home.
The conversations took place over many months as the financial reality and the emotional pull of their home clashed. In these conversations I help my clients follow both paths, one where they sell the house and one where they do not. We explore the possibilities. In both cases Emily and Jen came to the same conclusion, that the freedom to end their failing marriage was more valuable than holding on to the house, because without selling there was not enough money to separate. That this was the logical path did not make it an easy choice.
The Bay Area challenges us in ways that less expensive regions do not. Whether owning or renting the housing expense for many of us uses a far too high proportion of our income. In fact many of us spend more than 35% of our income on housing. For home owners in 2019, 24% of households spend over 35% of their income on mortgages, and over 40% of renters spend over 35% of their income on housing.
For those who have owned their homes for a longer period of time there is a great deal of freedom locked in the equity of the house. If the home was purchased for $400,000 in 2004, fifteen years later it can sell in 2019 for potentially twice that amount of more. There are no capital gains taxes for the couple as each has $250,000 in capital gain protected from taxes. Even if there is still a loan on the house there is enough of a down payment for each of the couple to either buy again, albeit a smaller home or perhaps a condo, or to rent with enough of a cushion to manage the transition from married to single.
The younger the children the harder it is for families to sell the home. But the age of the kids is only one consideration. When weighing whether to sell or not in a divorce consider:
· At the end of the settlement will the percent of your income going to housing leave you house poor?
· Will your need to save for retirement be affected by holding on to the current house?
· Can you replace the house with another property that will reduce the monthly burden?
· Will selling the home force a relocation to another town? And if so will this upset employment or schools for the children?
· Is this a good time to sell, or should you wait for values to go up? Your next steps (buying or selling) will inform this decision.
· Will holding on the house be better or worse for you in terms of ending the marriage?
Getting market data and exploring both purchase and rent options will help make a smart and well-informed decision. The emotional impulse is often to keep the house, but best to make that decision based on actual numbers. Don’t be afraid to explore all your options months before making a decision. I often provide my clients with this data, and follow up regularly, long before they are ready to make a decision. Being a resource to my clients is key to helping them make a choice that works best for them.