When you get divorced, it seems as though everything you believed to be true about your life and your future has been abruptly turned on its head. Making sense of the remaining bits can be challenging. It's normal to want to stay in your home and keep things somewhat normal. Staying in the family home may feel like you are clinging to stability, but it could also be a very expensive mistake. 

Let's now consider the big picture. A home is a place to reside. It doesn't give you any money to support your way of life. There's a good chance that there is some significant equity trapped in those walls if you and your spouse lived there for a long time. If you are given the house as part of the divorce settlement, it can be the biggest asset. Assume the house is worth $400,000 on the open market and has $300,000 in equity. Half of the equity is yours as separate property, while the other half belongs to our spouse. Therefore, if you keep the house, the entire $300,000 of your equity will be tied up in the home. This same amount of money, if invested in a portfolio of diversified investments, could conceivably generate $13,000 of yearly income for you. 

But hold on! There’s more. Future tax effects could have staggering implications. The $300k of equity is considered capital gain and would be exempt from taxes if you sold the house while you were still married. There is a marriage exclusion of up to $500k. However, if you sell that house after putting it in your own name and make a $300,000 profit, the personal exemption is only $250k, so you must pay capital gains tax on the remaining $50,000. Did your lawyer remember to take that into account when you were negotiating your settlement? One additional justification for my support of a mediated divorce assisted by a financial neutral. 

Divorce is tough, but it also gives you a chance for a new beginning, and it's crucial to your future that you start off financially sound. Bring a Certified Divorce Financial Analyst® to shed some light on some of these potential problem areas so that you are sure you understand all the implications of any property settlement you are considering. You only have one shot to get your settlement perfect. Make sure you are doing it right by taking the time to acquire the facts. You will look back on it as your wisest choice ever!