Atlanta Financial Blog

My Divorce is Final - Can I Afford to Stay in my Home?

My Divorce is Final – Can I Afford to Stay in my Home?

Cathy C. Miller, MBA, CFP®, CRPS®, CDFA™
June 4, 2019

One of the most emotional decisions you may face following your divorce is whether to stay in your current home or not. When confronted with so many other changes, many people going through divorce decide NOT to change their housing, since it seems like one of the few things they can still control. For some, that can be a big mistake. Since housing costs may be your single largest expense, getting this decision “right” can have a huge impact on you and your family’s financial well-being in this next phase of your life.

How can you decide if hanging on to the marital home is a mistake? A common rule of thumb for housing affordability is that housing costs should be no more than 30% of your monthly gross income. If you own your home, that figure should include mortgage payments, property taxes, homeowner’s insurance, hoa fees and maintenance). If you rent, it should include your rent plus utilities. Conventional wisdom presumes that limiting your housing expense to 30% of your monthly gross income should allow some breathing room for all the other necessary expenses you will face, both those you plan for and those that are surprises.

Of course, the problem with rules of thumb and conventional wisdom is that they work for the “average” person but may not be at all valid for you. Before deciding what housing expense you can afford, here are some questions you should ask yourself:

• How stable is your income? If your income depends on commissions or irregular bonuses, do you have adequate cash reserves to tide you over during the low parts of your income cycle?
• If you are relying heavily on alimony, what will you do when the alimony ends? If you don’t have a realistic plan to reduce expenses or increase income by an equivalent amount once it ends, you may need to save a good portion of the alimony payments for when it ends.
• What is the age and condition of your home? Is there expensive “deferred maintenance” looming around the corner?
• Does the size of the home and surrounding property fit your new circumstances and smaller household? Or would downsizing fit your needs better?
• Can you maintain the land or property on your own, or afford to pay others for those services?
• Now that the marital assets have been split, how adequately prepared will you be for retirement? You may need to save more aggressively now to make up for assets lost in the divorce and excessive housing costs can make that difficult or impossible.

Over-spending on housing can add enormous financial stress and even jeopardize your financial future. When we work with people going through or recently divorced, we start by putting all parts of the post-divorce budget on the table. We help assemble an accurate budget, including reasonable estimates for things that may be changing, like taxes, health insurance, income, etc. Then we begin to help our client “reimagine” their life post-divorce. We build detailed financial projections so that the client can see the impact on their future wealth of the choices they are considering. Does staying in the home lead to a decline in net worth and a fragile financial future, or is it affordable? Having a better handle on what the financial future is likely to look like can inform decisions and provide important peace of mind.

What if all this analysis shows that you can afford (both short-term AND long-term) to stay in the marital home? If that is the case for you, doing just that may be the right choice for you and your family. There are times, however, that staying anchored to our past choices can prevent us from envisioning better ones. I remember during my own divorce promising my almost grown children that we wouldn’t sell their childhood home for two years. Why two years? Honestly, it was just what came out of my mouth when I saw their pain. At the time I couldn’t imagine that either my girls or I were ready to envision anything different any sooner. With a little distance from all the emotional turmoil, however, I quickly realized that I had made this promise rashly, and that staying in the marital home was not the right choice for any of us. It was huge, required constant, expensive maintenance, had out-of-control utility bills, and came with a 2 hour+ round trip commute for me. Both girls were in college or recently graduated, so “home” was a place of memories, but no longer important in terms of friends or school. I began to look at other options, and once I had narrowed the choices down to the finalists in my eyes, I included my children in the search. They quickly got onboard with the new home, excited by a “cooler” in-town location for them and a 15-minute commute for me.

For those of you facing these difficult choices, please get help and guidance from a financial professional to understand the long-term impact of this important choice. Spend time with friends, family and those you trust envisioning all the possibilities the future might hold. If we at Atlanta Financial can help, know we stand ready and willing to help you with our proprietary DivorceFIT process, so that you enter this next phase of your life confident in your financial future.

Share This:

Share on facebook
Facebook
Share on linkedin
LinkedIn
Share on twitter
Twitter
Share on google
Google+

Using P.O.D. and T.O.D to Avoid Probate

Like any court system in America, Probate Court is a slow and sometimes complicated process that can delay estate distributions for months, and in extreme cases, years. While Georgia’s probate system is simpler than many across the US, probating a Will can also be expensive, with the filing fees, administration fees, and other court costs. And since it’s a public process, anyone can obtain a copy of another person’s Will. With certain assets, you can easily avoid probate and have the asset(s) transfer directly to the person you choose. Typically, these assets are generally accounts deemed “payable-on-death (POD)” or “transferrable-on-death (TOD).” The terms essentially mean the same thing but apply to slightly different accounts.

Read More »

Planning for a Meaningful and Healthy Retirement

A few months ago, I wrote a blog about the financial benefits of “phasing into” retirement. As it turns out, there can be health benefits to doing that as well.How can that be? Many people plan for and dream of retirement for years thinking that leaving the stress behind will be a boon for their health and emotional wellbeing. Not to mention that some professions are actually physically strenuous and take a physical toll as well. Retirement can be a time to follow your passions and pursue activities that you weren’t able to do during the working years, making this next chapter seem to offer a fulfilling capstone to a lifetime of professional accomplishments.

Read More »

Focusing on Results that Matter

Recently, my wife and I bought a new house.  She fell in love with it immediately and could see us raising our girls in the house, how could I say no?  But of course, there were financial matters to consider.  So, the planner in me immediately went to my budget spreadsheet to “crunch the numbers” and determine if we could afford it.  We have both been blessed in our careers and while this new home is a stretch to the budget, the answer is yes, we can afford our dream home.  So we decided to move forward. Now just the minor details of negotiating the purchase of the new home and selling our old home.

Read More »

My Divorce is Final – Can I Afford to Stay in my Home?

One of the most emotional decisions you may face following your divorce is whether to stay in your current home or not. When confronted with so many other changes, many people going through divorce decide NOT to change their housing, since it seems like one of the few things they can still control. For some, that can be a big mistake. Since housing costs may be your single largest expense, getting this decision “right” can have a huge impact on you and your family’s financial well-being in this next phase of your life. How can you decide if hanging on to the marital home is a mistake?

Read More »