House appraisal minus mortgage balance does not = equity to be divided between spouses. Does your house need repairs? Have a home inspection prior to signing the divorce papers to determine if expensive repairs are necessary now or are likely in the future. Many home inspections do not include the HVAC and this requires a separate inspection. Did you remember to subtract the projected expenses (painting/repairs etc.) needed to get the house ready to put on the market and closing costs from the value you assign the house?
Under-estimating monthly expenses. If you want to stay in the marital home, you should consider more than just the mortgage, taxes and insurance expenses. Does your monthly budget include the cost to have the exterior of the house painted every 5 years, the deductible for your homeowner's insurance, or the expense to remove a fallen tree? A complete household budget should have about 30 items and a family budget should have about 125 items. How many items are in your budget? If you underestimate your expenses and don't ask for enough alimony, how will you pay your bills? If you will be paying alimony, you also need an accurate budget. Otherwise, good intentions or a guilty conscience can cause you to agree to a settlement you can't afford.
Not budgeting for the unexpected. Include a contingency in your monthly budget for those unexpected bills. Have you considered getting a home warranty to cover large expenses? The most expensive and frequent house repairs include:
Not performing a timely title search. Has your ex-spouse borrowed against the Home Equity Line of Credit (HELOC) while you were going through the divorce process? Are you sure? A $60 investment in a proper title search can save you tens of thousands of dollars.
Unpaid property taxes. Have property taxes been paid for the current year? If you keep the house and don't address this issue before the divorce papers are signed, you could get stuck paying for the whole year of taxes. Is that in your budget?
Divorce is the 4th most frequent reason cited for bankruptcy in this country. Additionally, divorce and home foreclosure can occur in rapid succession. Don't become a statistic.
Consult your tax advisor concerning the information addressed above to ensure that it applies to your unique situation.
Sandy Arons, MBA, CDFA™, CFDP, CDFS is the founder of Arons & Associates Divorce Planning, where they specialize in the financial and tax issues of divorce. They encourage you to take the time to understand the numbers before you sign the final divorce paperwork, educate you so you can make informed choices, and secure your future and your children's future. Don't just get a divorce. Get a smart divorce. They can be reached at (615) 376-8204.
Certified Divorce Financial Analyst
Business Valuators / CPAs