Divorce the House before the Spouse
Splitting up after years of marriage? Divorce your house, then your spouse. If you're still linked through the house, then you're not really divorced.
That bit of advice goes against the almost universal desire to hang on to the family home, especially by the spouse who ends up with custody of the children. Indeed, the courts almost always give special consideration to the parent who gets the kids: Keep the kids, keep the house.
However, the place is often so filled with memories, both good and bad it's not the family home anymore. It can be a huge anchor both emotionally and financially. People also tend to underestimate the true cost of homeownership, so much so that the remaining spouse's ability to afford the place is often drastically overstated.
Even in a friendly divorce, if there really is such a thing, certain key expenses are either forgotten or overlooked. Lawn care, homeowners' association fees, even the basic costs of maintenance and upkeep are among the costs that are rarely considered, either by the courts or the spouses.
Then there's the even bigger issue of hidden debt. Ideally there will have been no secrets between the husband and wife. But money is a major cause of divorce, and in many cases, one spouse has no clue that the other one has rung up big bills that have become undisclosed liens against the property.
In most divorces, the spouses determine what the house is worth, and the one who gives up the place is usually given a credit of some sort for his or her half of the equity the couple has in the place. Typically, the parties split the difference based on an appraisal.
But along with that appraisal one should obtain an independent, third-party inspection of the property to determine whether there are any latent defects that could impact its value. You wouldn't buy a house without an inspection, so why would you accept one in a divorce without an inspection? What if something's wrong or about to go wrong? You can use the inspector's report as a punch list, and either use the marital assets to make the necessary repairs or reduce the value of the property accordingly.
Make sure to ask your inspector to estimate the remaining life of the property's major appliances and systems. If something is on its last legs, you'll want to know in advance so you can adjust for that as well. While you're at it, order a termite inspection--the damage those little buggers cause is often significant.
One other item that needs to be factored in is the tax ramifications of any settlement. A settlement cannot be fairly evaluated without checking with how the IRS will interpret your division of property.
Fortunately, a major mistake is preventable--but only during your divorce, not afterwards. Information is the key -- more of it and as early as possible. More due diligence and more information from more financial and real estate experts, all much earlier in the divorce process should safeguard you and your family's financial future.
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