Where to Live During & After a Divorce: Is it prudent to get a new mortgage?
by Jaime Goodman, CDFA®, CRPC®
Senior Vice President-Wealth Management & Senior Financial Advisor
The Goodman Group, Merrill Lynch, Pierce, Fenner & Smith Inc.
White Plains, NY
In a divorce, it's bad enough that you lose someone you once loved or may still love. It’s even worse when you learn you may lose your house.
Finding a replacement won't be easy. After all, lenders tend to give mortgage loans to people with good credit and a steady income stream. If you were previously a two-income household, you aren't now. If you're paying alimony, you have less money than you did. If you're receiving alimony, it may not be sufficient to cover the mortgage.
Whether you're in the midst of a divorce or its aftermath, here are some steps you can take to land a mortgage as well as what you can reasonably expect, culled from the toolbox of Certified Divorce Financial Planner, Jaime Goodman, CDFA®, CRPC®. She is a Senior Vice President-Wealth Management and Senior Financial Advisor at The Goodman Group, Merrill Lynch, Pierce Fenner & Smith Inc. in White Plains, N.Y.
- You may want to get either your name or your ex's name off the mortgage. But perhaps not; it depends. If you plan to buy a house, and your ex is living in the home you co-own, then ideally, your ex needs to refinance in his or her name. That will decrease your debt and increase your odds of being able to secure a new mortgage. You can't force him to refinance, unless it's stated in the divorce decree and you go to court.
If you'd like to see your ex and the kids remain in the house, you may want to leave your name on the mortgage and co-own the house for a while with your ex. If you go that route, you'll want to work out details about how profits will be split once the house is sold down the road. It may not be an equal split since one ex-spouse will be likely making the mortgage payments and possibly spending money to maintain the home for those additional years.
This arrangement tends to work better if the ex, without the house, still has enough income and good credit to buy a new home on his or her own.
- Don't buy a home during divorce proceedings. Even if you're rich beyond belief and your credit and income streams are solid, it's still a risky move. It can be difficult for a person paying alimony to buy a house because of the way lenders look at alimony. It's considered a debt. If you make $10,000 a month and give $3,000 to your ex-spouse, the lender doesn't look at the situation as if you're making $7,000 a month. The lender looks at it like you have a $3,000 car payment every month. So what do you do? Don't buy a home during this time, as you don't want to make any emotional decisions until the divorce is final.
- Where you should live during the divorce proceedings needs to be weighed. Assuming you aren't selling your house immediately and you both are looking for a place to rent, there are two common approaches couples take:
- Stay in your house with your soon-to-be ex. More people grin and bear this situation and live together a bit longer. Living together awhile will save you both money. And especially if you have children, maintaining a civil relationship under the same roof may help with your post-divorce relationship.
- You could nest. You hear "nesting" used a lot in pregnancy, but in the divorce industry, the term refers to renting an apartment near the house and living there while a divorce is worked out. This is occurring more frequently.
Whatever you decide to do, don't rush the decision about where to live next. You may already be under tremendous emotional stress and not make the best decision if you buy something else. Divorce can shake your confidence, and you may not be able to make the right decisions right away. Besides, you may not be able to rush even if you want to. Some lenders won't consider letting a divorced person who receives alimony use that alimony as evidence of income until there's a six-month history of alimony payments being paid on time.
- You may be better off without a mortgage. This may be the last thing you care to hear if you want to hang onto your house or buy a new home. However, the money math may not add up.
It's a common mistake with divorced homeowners. Many people are trying to hold onto a house because it's where the kids grew up, or perhaps they don't want the kids to have to change schools or lose friends. But in the process, they stay too long trying to afford something they never could or should own. Sometimes, a temporary move to a rental offers time to re-assess the situation, even if it involves an extra moving step and costs. In that time, you can calmly look at new homes. Also, it gives you some time to accrue income and improve your credit rating if it needs shoring up.
Before you take any steps or start packing, consult a Certified Divorce Financial Planner or other financial advisor even at your bank. You want to determine whether buying and maintaining a home is the correct move--and what type of home--size, price, and neighborhood--should be in your future.
About Jaime Goodman
Jaime leads the Goodman Group, that all hold the CDFA™, or Certified Divorce Financial Analyst™ designation. Jaime has run educational seminars for several years, seeking to educate women and guide them to financial independence. Through these and after her own divorce, she developed a particular interest in serving the unique needs of divorcing and post-divorce women. She collaborates with attorneys to guide clients through the financial aspects of the divorce process. She has over 25 years of experience in Wealth Management, joined Merrill Lynch in 1992, and has successfully worked with clients through a variety of market conditions. Her number one priority as a qualified Portfolio Manager is to help clients balance risk so they can enjoy consistent returns, while limiting exposure to the volatility that can make investing an anxious experience. Jaime graduated from the University of Pennsylvania, and lives in Scarsdale with her three children.