Getting divorced: Does staying in the marital home pass the financial test?

 

Key takeaways

  • Create a detailed budget.

  • Consider what’s best for you and any children.

  • Examine the pros and cons of staying put.

  • Discuss all financial implications with your trusted advisor.

 

You’re in the middle of negotiations with your spouse on dividing the family assets and you’ve been offered the marital home as part of the settlement. While at first blush it may appear a good thing to take ownership, you should carefully consider your financial position before making a decision. Carefully evaluate whether it’s best for you to live in the home, sell it or negotiate another family asset in exchange for its value.

 

Important questions to ask

  • Can I afford to keep living in the home after the divorce, bearing the expenses of home ownership on a single rather than a joint income?

  • Would I have to refinance the mortgage using a reduced income profile?

  • Are children involved, and is it in their best interest to stay in the home to complete school?

  • What is the home’s current physical condition, and how much will it be worth in the future?

 

Craft a budget

Your first step is to prepare a budget. Income sources may include employment, spousal support, investments and money from the division of family property. In the case of older clients, income may include Canada Pension Plan (or Quebec Pension Plan) and Old Age Security payments, and private pensions and annuities.

Expenses typically associated with home ownership include mortgage payments, property taxes, utilities, including heat and light, cable and Internet, routine home maintenance costs, condo fees and home insurance premiums. Keeping the home may seem a good idea when real estate values are rising, but what happens if prices plateau or even fall?

 

Consider the children

Leaving the matrimonial home during the divorce process poses its own dangers when it comes to custody and access matters, according to family lawyers. Once a parent moves from the home, leaving the other parent in possession with the children, it can be difficult to maintain months later in court that there should be a joint custody arrangement. For that reason, some divorcing parents will take turns staying in the home with the children.

Take into account what plans you have for saving for your children’s education. The matrimonial home’s future value can provide a means of funding that education through an RESP – or the cost of maintaining it could prove all-consuming, leaving little for your child’s tuition fees and living costs.

 

Examine the pros of not staying put

Relinquishing a claim to the house could prove to be the best decision if other family assets given in exchange are more liquid, thereby giving you more flexibility when it comes to making decisions about where to live, providing for children and even making choices about a future career.

Remaining in the family home or moving out are big decisions with considerable financial and personal repercussions. Staying put can offer stability and greater worth should the home increase in value over time, but it can also be a financial strain under new economic circumstances and prevent a clean break that you might need post-divorce. A careful analysis of the pros and cons of each scenario is necessary and should be carried out in partnership with your financial advisor.


Sources:
www.fidelity.com/life-events/navigating-finances-during-divorce/overview
Michael G. Cochrane, LLB, Surviving Your Divorce: A Guide to Canadian Family Law, Sixth Edition (John Wiley & Sons, 2011). (Kindle Edition)
Judith Wallerstein and Sandra Blakeslee, What About the Kids: Raising Your Children Before, During and After Divorce (New York: Hyperion Press, 2003).
Brette McWhorter Sember, How to Parent with Your Ex: For the Residential Parent (Naperville, IL: Sphinx Publishing, 2005).
Gail Vaz-Oxlade, Money Rules: Rule Your Money or Your Money Will Rule You (Toronto: Harper Collins, 2012).

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