Dear Carolyn,
I am struggling with the finances in my divorce, and more particularly on whether to keep the marital residence. I live in the Oakridge section of Guilford County, where the homes are beautiful and expensive. I have approximately $300,000 left on my mortgage, and the payment is around $2,500 per month with insurance and taxes. I have an excellent interest rate, so I don’t want to refinance, but there are about 20 years left on the mortgage. I am 41 years old. I will get alimony for some time and a property settlement. My estranged husband has a business, and I will be bought out of that, according to my lawyer. My children are in the Oakridge school district, which is best for them. How do I analyze whether to keep the home in the divorce?
Carolyn Answers,
The decision to keep the marital residence or not to keep it is generally challenging. There is the emotional side – “we lived here together, which may make healing harder.” Then there is the financial side – “Can I afford the home? I will deal with the economic side, but consider the emotional impact in your analysis.
Typically, your estranged will want you to refinance so the debt is off his credit report. He will probably want to buy a home, and he may not be able to purchase a home with the debt of the former marital residence on his balance sheet. With the current interest rates, refinancing will increase your monthly payment. If you keep the home, try to get a few years before you refinance, and watch the interest rates. Consider the payment with the higher interest rates in the remainder of your analysis.
You do not say your income, so I will work with percentages. The conventional rule is that 25 to 28 percent of your monthly gross income can go to the mortgage. That means you need a monthly gross income of $10,000 to afford a $2500 mortgage. If the mortgage payment goes to $3,000 with refinancing, you need $12,000 monthly gross income. You will always feel cash-strapped and house-poor if your income is not at these levels. The second consideration is other debt. The traditional rule is that total debt should not exceed 36 percent of your monthly gross income. You, therefore, must consider your car payment and any other payments. Try to get any credit card debt paid off in the divorce, and then only use credit cards you can pay off monthly. Finally, in your budget, remember to save every month. Save 20 percent per month if at all possible.
Send your family law and divorce questions to “Ask Carolyn…” at askcarolyn@rhinotimes.com, or P.O. Box 9023, Greensboro, NC 27427. Please do not put identifying information in your questions. Note that the answers in “Ask Carolyn” are intended to provide general legal information, and the answers are not specific legal advice for your situation. The column also uses hypothetical questions. A subtle fact in your unique case may determine the legal advice you need in your individual case. Also, please note that you are not creating an attorney-client relationship with Carolyn J. Woodruff by writing or having your question answered by “Ask Carolyn…”
