Divorce Rich with Jacki Roessler, CDFA
Welcome to the Divorce Rich Podcast! Join your host, highly sought-after speaker and experienced Certified Divorce Financial Analyst, Jacki Roessler, CDFA in this engaging and down to earth show. Along with her guests, Jacki offers clear and detailed advice to improve your financial decisions before, during and after divorce so you can survive divorce rich! New episodes are posted every other Thursday! You can reach Jacki through her Michigan-based firm, Roessler Divorce Consulting, located at 600 S. Adams, Suite 300, Birmingham, MI 48009 or by email at jacqueline@roesslerdivorce.com.
Divorce Rich with Jacki Roessler, CDFA
A House Divided: Your Home and Divorce
What happens to the family home after a divorce? In this episode, Jacki Roessler unravels one of the toughest financial decisions you're likely to face during a divorce. We explore whether to sell the home and split the proceeds, or if one spouse should buy out the other's interest. With a focus on financial clarity, Jackie guides you through the emotional and financial pros and cons of each option, emphasizing the importance of gathering the necessary financial information to make this crucial decision.
We also tackle the often-overlooked complexity of retaining joint ownership of the home with a future buyout or sale in mind. Evaluating post-divorce budgets, potential settlements, and financial projections is essential, and Jackie explains the long-term implications of your choices. This episode highlights the invaluable role of a Certified Divorce Financial Analyst (CDFA) in navigating these challenging decisions. Equip yourself with the knowledge and tools to make the best possible financial choice for your future during this trying time.
Visit us at https://www.roesslerdivorce.com/ to learn more about Jacki's practice and to find valuable resources for your case.
Visit us at https://www.roesslerdivorce.com/ to learn more about Jacki's practice and to find valuable resources for your case.
Welcome to the Divorce Rich Podcast. I'm your host, jackie Ressler. I've been a certified divorce financial analyst for 28 years, helping clients and their attorneys navigate the often complex and confusing financial issues in divorce. If you're in the process of, or considering divorce, now is the time for you to take a deep breath and give yourself permission to find clarity on the financial issues you're facing. Rich means many things to many people. I believe the best definition of being rich is someone who has access to many resources. Along with my guests on this podcast, I will be bringing you a wide variety of information so that you can make sound and informed financial decisions for your financial future.
Speaker 1:Hey, this is Jackie Ressler, and if you're in the process of divorce or considering divorce, I am so glad that you are here listening to this episode today, because today I am going to cover a topic that has come up in almost every single case I've had in the past 26 years. The primary question that most people have on their mind when they go and speak with a financial advisor about their divorce or they sit down with me. The first thing that always comes up is I really want to know if I can afford to keep the house and if I should keep the house. So my episode today. I want to try and shed some light on this topic. We are going to be talking about the options first. What are your options in terms of how to handle the house Number one? Then I'm going to go into some detail about the pros and cons of each of these options and finally, I'm going to finish up by letting you know what information you need to collect and gather, to bring to a financial advisor or sit down and talk with your attorney so that you can make that really important analysis. As a client of mine reminded me the other day, you only have one chance to get your settlement right and if this is the biggest decision that you have, you want to make sure that you take enough time and consideration before you make that decision based on emotions and not the financial piece, and of course I know that those go together.
Speaker 1:The emotional aspect of keeping the house is important, whether it's a matter of keeping stability for your children, the fact that you have a community, the fact that you love your house, that you put a lot into it. Those are all important things that everyone takes into consideration when they're getting divorced. But what I'm going to focus on today is just the financial aspects, so just the facts. So, diving right in in terms of options, the first and easiest option is you put the house up for sale today and you split the proceeds. So what are the pros and cons of this One? It's certainly the simplest way to handle the house in a divorce. So there's that factor.
Speaker 1:Other benefits are you share the closing costs and commission on the sale with your soon-to-be former spouse. So if you keep the house and at some point you're going to sell it in the future, that's going to be completely on you. As far as the closing costs go, it's not going to be taken into consideration in the division of your property settlement generally, unless you're planning to sell the house fairly soon. So you're going to share the closing cost and commission with your spouse. That's one financial benefit. Another benefit that it's hard to put a price on.
Speaker 1:Speaking as someone who recently just sold their house after living there for 20 years, I can testify that there is a lot of mental, physical and financial effort in getting your house ready for sale moving, purging and just getting all of those things done that you need to get done to prep it for sale is a major undertaking, so if you can share that task with someone else, that is certainly a benefit that you need to consider. As far as what the negatives are of this approach, obviously there is the part about leaving the house and all of the memories that you've put into the house which for some people is a negative, of selling the house and both people moving. It means that your children if you have minor children or even adult children that come back home aren't going to have that home base that they're used to and that they're comfortable with. So those are some of the negatives and, of course, depending on where you live and when you're listening to this episode, it may not be a great time to sell. As this episode is posting right now, it's June of 2024. That's a fantastic time to put your house up for sale. In Michigan, there is very little inventory on the market and houses are still selling pretty quickly. So for when I'm taping this, it's a very good time. Now, of course, that changes over time. Sometimes it's a good time to sell, sometimes it's a bad good time. Now, of course, that changes over time. Sometimes it's a good time to sell, sometimes it's a bad time to sell. So it could be that the time that you're in it may not be the best timing for selling, and that could be a negative.
Speaker 1:Another option for how to treat the house, of course, is that one person stays in the house and buys out the other person's interest. So in order to do that, there usually would have to be a value for the house that you both stipulate to or you both agree, or there has to be a formal appraisal done if one person is going to buy out the other person's interest. So in order to do that, you'd want to know what the fair market value is, by getting an appraisal again or stipulating to that amount minus the mortgage, any home equity loan that you also have against the house, and you would determine what the equity is and then you would pay out your spouse their share of the equity. And there's a couple different ways that that could happen. So I'm going to use my tried and true example Bill and Sue. So let's say that Bill and Sue are getting divorced and their house has a value of $500,000 and they have a $250,000 mortgage against the house. So the total equity in the house, or the value minus any debt against it is also $250,000. So each one of them are entitled to receive $125,000 or half of that equity, if that's what their settlement is.
Speaker 1:So let's say that Sue is going to keep the house, so she needs to be able to pay Bill his $125,000 in equity, and there are a few different ways that that could happen. One way is that she refinances the loan into her own name and also gets an additional amount to pay out Bill's interest. So her new loan would be $250,000 plus $125,000, which would be the cash to pay him out his interest. So as you're listening to this, you can probably already hear what the problem is payment on that new higher loan amount and she's going to lose that fantastic interest rate that she had, which, for a lot of clients right now that I see their interest rate is one and a half 2% certainly less than three because they refinanced wisely when interest rates were so low, and right now interest rates are high. So not only is Sue going to get hit with that higher payment due to an interest rate, but also she's going to have a larger loan.
Speaker 1:Another option for Sue would be, if there's cash available or investment accounts post-tax accounts that are being split, sue would just take $125,000 less of those accounts and she would not actually refinance the loan. If that were the case, she would still need to remove Bill's name from that mortgage. And there are a few ways that that could be done. One is with an assumption of the loan. Let me explain what a loan assumption is if you've never heard of that before. In this case, the lender would allow Sue to assume the primary mortgage into her name. So let's say that the mortgage was in joint name between Sue and Bill. The lender would allow her, if she qualified, to step into the shoes of the lien holder and take over or assume that loan, which would leave her with that very attractive low interest rate. So her payment would stay the same. However, she still has to go through underwriting and the lenders are not allowing. They won't allow, they won't send out a final qualification of that until they have a final judgment of divorce, which makes it really difficult to plan. That's going to be what the clients are going to end up doing if they're not sure that Sue would actually get approved. And she may not get approved because she might not have enough income to support taking on that loan in her own name. The other problem with the loan assumption is that they're pretty expensive. So most of the loan assumptions that I see that cost is somewhere in the range of $8,000 to $10,000. So that's another large chunk of money that needs to be accounted for in the marital estate. So that is one option.
Speaker 1:Another option is that if the lender allows a release of liability on the loan, that's another option. The option would be they decide to kick the can down the road and Bill and Sue decide to keep their house and retain it jointly for some period of time. So they're not going to sell it right now. Neither one is going to buy the other one out. Let's say that Bill decides he wants to keep the house. He's going to be the primary owner and the primary occupant. He's going to have primary physical occupancy of the house. He will make the mortgage payment and they will split the proceeds at some point in the future, either by Bill buying out Sue's interest or by selling the house in the future and splitting the proceeds in some way. In that scenario let's say Bill and Sue again, the house is worth $500,000. There's a $250,000 mortgage. So one option is that they put into the agreement that in two years, bill decides he's either going to buy out Sue's interest at the set value that it's worth today, and so he's going to give her $125,000 in two years, or they sell the house and he's going to give her $125,000 in two years. Sell the house and he's going to give her $125,000 in two years.
Speaker 1:Another option is what a lot of people do. Bill's going to have primary occupancy, he's going to make the mortgage payment and he's going to get credit for any portion of the principal he pays down. But whatever we sell the house for net of closing costs and commission, we split. So let's say, the house increases in value from 500 to 750, which is not out of the realm of what's happened in recent years, actually in many of my cases. So now what's going to happen is that Sue is going to get a lot more than 125,000. So her dollar amount from the house is going to go up considerably. That might be a good thing for her, not such a good thing for Bill. So you want to think about the pros and cons of what the numbers of that might look like and in that scenario of splitting the net proceeds in the future after giving the person who's been paying the mortgage credit for the principal reduction. It could be that the house is actually worth less than what was agreed upon on the date of divorce, and if that's the case, then both people are going to get less. So there is risk to doing that. Either way, it's important that you consider what those risks are.
Speaker 1:Okay, so, to put it all together, we've talked about three ways that you could handle the marital home if you're getting divorced. By the way, there are other options. You can really think out of the box and be creative. There might be all different kinds of ways that this could be handled, but these are just the three main ways. So sell the house now. Split the proceeds. One person buys out the other one's interest today. Or option number three you kick the can down the road and decide that you're going to retain it jointly and you are going to decide in the future who's going to keep the house. So one person stays in it with the idea that they have a certain number of years until they make the decision if they're going to buy out the other party's interest or sell it.
Speaker 1:At that point, the real crux of this episode comes down to this next portion. So I hope that, as a listener, you're still with us, because this is the important part. How do you make these decisions? Again, we've already discussed that there are emotional aspects to this decision. When somebody comes to me and they have this question what should I do with the house? Is it best for me to keep it? Sell it? Is it best for me to give it to my spouse? Is it best for us to retain it jointly? What do I look at in order to help them analyze that?
Speaker 1:Number one I want to see what their post-divorce budget looks like. So I'm going to link in the show notes here the episode I taped on budgeting and also, as well, a link to our budget worksheet. That's one of the places that everybody has to start with. That's one of the places that everybody has to start with. I need to see on paper what their living expenses are anticipated to be post-divorce. So that might include keeping the same mortgage. It might include having to refinance, take out a loan assumption. Maybe you can have the same rate. All of those different options need to be considered and evaluated for how realistic they are. So that's number one. So all of your other living expenses, too.
Speaker 1:The second thing that I need to look at is what is the potential settlement going to be? So what other assets are you going to be receiving? What are the other assets in your marital estate and what would that look like? If you decided that you're keeping the house? How would you buy out the other spouse? What assets do you have? So that's an important piece of the puzzle. What assets do you have? So that's important, important piece of the puzzle. Then what I do is I take that information and I run financial projections that show my client what they will look like if they in five years, 10 years, 20 years, if they keep the house versus selling the house, versus buying out or having the other spouse buy them out.
Speaker 1:So those are all things that we look at with financial projections, and the only way that I have to do that is by incorporating in their living expenses that are anticipated, their other assets that they're going to receive and the rate of inflation. We take into consideration any earnings on investment assets or retirement assets and all of that goes into the projections that my client can look at and say, oh okay, so I'm going to keep the house. I see that I'm going to have a tougher time making it in retirement. If I do that, well, that's important information for that client to have. So I always tell clients I don't I don't ever want to be the one making the decision for them on what's the right choice for them, but I think it's incredibly valuable for everybody who is considering what to do with their house in a divorce that they look at all the options from every angle that they can and make a decision based on an educated idea of what could or couldn't happen.
Speaker 1:Now no one has a crystal ball and no one can tell you exactly what's going to happen in the housing market or with interest rates or with their job going forward, what the spousal support or the spousal maintenance, depending on where you live, the alimony amount may or may not be that, if you're the payer or the receiver, that also has to go into the equation, and all of these things work together to help clients evaluate what is the best decision for them. So there isn't any one right answer that's right for everyone, and there could be more than one right answer for each client. So again, it's really important what do I do with the house is so much more than what you can qualify for in a mortgage or what you think is best for your children. It really is taking a look at all of the financial aspects and putting it together, and that's the part of my job that I really enjoy the most. So finding a CDFA in your local area a certified divorce financial analyst that can help you with this, is one option. Another option is to talk about it with your lawyer or even, if you have a current financial advisor, to have your current financial advisor try to help you analyze all of the options for you before you make a decision.
Speaker 1:Thank you so much for listening to this episode. If you know someone that you think this could be helpful to hear, please share this episode with them, and if you have any ideas for us on future topics of things that you would really love for us to cover, we'd love to hear from you. Thank you so much for taking time out of your day to listen to Divorce Rich Podcast. If you like this podcast, please follow us on Apple or anywhere that you download podcasts and share this link with any friends or family that you think might benefit from this information.
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