Going through a divorce is one of the few times that women will really tune in on money! While still reeling from the shock and pain, we at least attempt to put a plan in place with respect to our money. What to do with the house is usually one of the first questions asked.
I know this firsthand because of my background in finance, which means that I get more than my fair share of colleagues and friends coming into my office, closing the door with red eyes and a note pad open to a blank page, to get financial advice for their divorce. It does not hurt that I have been through my own divorce, including all of the stages, from at first thinking it is not really about how to split the money to the final stage of realizing I really need to protect myself financially because no one else will.
As most people’s largest asset is their home, I find that women’s first instinct is to “keep the home” for a host of reasons around giving the kids the stability we think they need or just being attached to a place and not feeling we can uproot our homes while uprooting the family and the relationship.
However, my experience has been that it seldom makes sense for a woman to “keep the home.” For one thing, if she keeps the home and that is the family’s largest asset, then when everything that is owned is split, she’ll be giving up other assets to offset the value of the home. Then, at a time when she most needs to rethink and be sure to right-size her expenses, she is saddled with a home that may be too expensive to maintain, and not the right time to sell.
The arguments for buying a home, or in this case, keeping a home, versus renting are meaningful. First of all, in most markets, over time the amount of money a person spends on rent is about the same as or less than the amount a homeowner spends on a mortgage. When you first purchase a home, the mortgage payment covers mostly interest. As time passes, more of each payment goes toward paying down the balance or principal of the loan itself. So every mortgage payment is a form of savings because it increases the amount of your home that you own, known as the “equity” in your home. Renters are not able to build equity with their monthly payments.
Also, if you have at least 20% equity in your home, you either have or can get a long-term fixed-rate mortgage (ideally 30 years), to ensure you will have the same payment month after month, year after year. This provides a sense of stability that a renter does not have. Rents are often increased every time the cost of living goes up.
Many of these arguments are turned upside down when you are going through a divorce. This is the time to keep expenses low and long-term commitments to a minimum while you stabilize your income and all of the other aspects of your life. It’s most likely a time to stay flexible and mobile and low cost, which is what most rentals allow you to do.
This is easier said than done for many of us. I “kept the house” and then had to try to sell it right in the middle of the market downturn of 2008-2009, and got much less than I most likely would have if I had sold during the divorce. Of course, I didn’t give a hoot, because I thought it was right for my kids, but I hope that others will take advantage of what I learned the hard way and at least take a serious look at this advice.
I stayed in our family home for the first year. At that time – it was for the kids. But then the more I looked at the finances, I knew that I could just not do it. The thing was, my ex really wanted me to stay in the home – for the kids, and as his lawyer put it – now worries. I can stay and then they will charge me back for the monthly mortgage out of my settlement. That was not going to work for me. I moved out and told him to move in – for the kids. He initially agreed, but once I was out he decided that he did not want to move in (I think that was his girlfriends doing). The home sat empty for 8 months before it sold at the bottom of the housing market. Financially it was the right move for me. My kids adjusted to the new home that I rented. Eventually everything stabilized, but those first years was about decreasing my expenses and finding a new job to increase my income. There were a lot of changes – and financially they were all the right moves. Life feels a whole lot better when we stand on stable ground.
Reading your story, Stacey, makes me remember how difficult this was for me back then, and realize how great it feels to know others have share these challenges and emotions.