Becoming “house poor” a serious risk in some divorces
Holding onto the house isn’t necessarily the best outcome for many people
One of the most contentious and important issues to be resolved in many divorce cases is deciding who gets which assets. Couples in a marriage have typically built up a considerable estate and it is only fair that each spouse retains his or her fair share of that estate once the marriage ends. When dividing marital property, the house is often a major source of disagreement and can lead to people making financial decisions based on heated emotions. According to USA Today, disputes over the marital home can lead to the spouse who ultimately holds onto the home becoming “house poor” and in a precarious long-term financial situation.
“House poor” divorce
Because the marital home is typically seen as the biggest asset a couple owns, many people judge “winners” or “losers” in a divorce based on who ultimately holds on to the home. This conception is often misguided, however, and is based just as much on emotional attachments to the home rather than on whether holding onto the house is a wise financial decision.
Maintaining a property after divorce can be expensive, after all, especially for somebody suddenly living on one income. A home that was built for a large family may be impractical for somebody who is newly divorced, especially considering the cost of maintenance fees and taxes. With these expenses in mind, the person who agrees to keep the house and be responsible for the indebtedness may ultimately be unable to afford a decent quality of life, leading to a situation commonly referred to as “house poor.”
Thinking long term
As the Huffington Post points out, what many divorcing spouses don’t realize is that their most valuable asset is often not the home, but retirement accounts. While holding onto the marital home can feel like a win in the short term, understanding how retirement funds can be divided could protect divorcing spouses in the long term. Most retirement funds, including pensions, can be divided between both spouses, even if only one spouse’s name is actually on those funds. With a share of the retirement funds in hand, many divorcing spouses will be much better protected financially in the decades ahead.
Retirement funds, however, are complex and usually need to be dealt with early on before a final divorce agreement is signed. Unlike other assets, pensions are divided according to a Qualified Domestic Relations Order (QDRO), which can help avoid complicated legal and tax issues when dividing retirement accounts.
Family law advice
A family law attorney can help with submitting a QDRO as well as with understanding what the best strategy may be when dividing a marital estate after divorce. Years of experience in family law allows such an attorney to provide people who are going through a divorce with the help and guidance they need during what is often an otherwise challenging time.