A divorce can be one of the most emotionally charged events you might face. When you're caught in that period of turmoil and stress, it's important to think clearly about the best possible way to divide your property, particularly your home if you own one together.
1. Can you handle the mortgage? While staying in the house may be desirable, you don't want to obligate yourself to a bigger payment than you can afford. Consider any alimony and child support payments into your total income if you think you can count on your soon-to-be ex to make the payments. To refinance, you'll have to qualify for the mortgage.
2. Add in other expenses. In addition to the mortgage payment, which usually includes property taxes and insurance, you'd also have to handle the electric, gas, sewer, water, cable and telephone bills on your own, not to mention lawn maintenance, other regular home maintenance and unexpected repairs. Consider a home inspection to identify big repairs that may be looming.
3. Tax deductions could help you. Deductions for mortgage interest and property taxes and head-of-household filing status could make it easier for you to own the house alone, so factor those into your overall financial picture. (If you get primary custody of at least one child, you can file as the head of household.)
4. Consider co-ownership. If one of you simply can't afford to go it alone and your divorce is amicable, you could continue to co-own the house and share expenses for a set period of time, say two or three years.
5. Refinance if one of you keeps the house. If both names remain on the mortgage, both spouses will be obligated for its repayment even if only one of them is on the title to the house. If the spouse who owns the house fails to make payments, the credit of both spouses will be damaged.
6. Does downsizing make sense? Sometimes an immediate move to a smaller home represents the course of sanity because the original home's expenses are too great. But such a move may not be wise if it ultimately won't save you much money or if it requires you to relocate to a lower-quality school district.
7. Selling offers a fresh start. If you've lived in a house for years, it no doubt holds many memories for you, both good and bad. Sometimes making a clean break can be helpful emotionally.
8. Understand the tax benefits of selling. Thanks to the capital gains tax exclusion, you and your spouse each can exclude as much as $250,000 of any capital gain. You also can take advantage of this exclusion if you sell the home after a period of co-ownership.
9. Know when not to sell. If your home is in a depressed market, make an effort to hang on to it until property values increase. You could rent the home out and hire a neutral property manager.
10. Do the math. Financial planners and analysts who specialize in divorce have access to software that can spell out long-term property settlement, child support and alimony scenarios for you. The Web site of Family Law Software Inc. (www.splitup.com) offers many free "divorce calculators" that also can help.
Sources: MSN Money (http://moneycentral.msn.com); Bankrate.com (www.bankrate.com); "The Financial Guide to Divorce Settlement" by Carol Ann Wilson.