Many of us don’t have the option of buying a home during the process of divorce due to financial constraints. However, the real estate market in the greater Houston area is red hot right now, and this question has been coming up a lot lately. So, let's take a look at the pros and cons of this question for those going through divorce.
For starters, going through a divorce is highly stressful for the whole family. Buying a home now will only add to your stress and to-do list. You are likely experiencing a wide range of emotions right now, including the fear that you won't have anywhere to live. However, many questions remain unanswered about you and your spouse's financial situation post-divorce. You can count on one thing: many changes are coming.
Most legal, financial and psychological experts typically advise couples going through divorce not to make any major financial decisions until the divorce is final, and the dust settles. There are just too many unknowns and such purchases will likely just complicate matters.
Remember, all assets acquired during the marriage are “community owned,” half-owned by each spouse. That includes real estate or a house purchased during the divorce process. It doesn’t matter whose name is on the title. The other spouse still has an interest in the asset. If you buy a home during the divorce process, you would be purchasing a house with funds that belong partially to your soon-to-be-ex-spouse. In most cases, title companies will require the other spouse to attend the closing and basically, give permission for the home to be purchased.
With today's increased scrutiny of home buyers, it also may be difficult or impossible to find lenders who are willing to extend mortgages to couples going through divorce. Many mortgage companies have implemented new, stricter rules for all applicants trying to qualify for mortgages. So, while on the surface this may seem to have merit, the reality of the current mortgage market may end up preventing the purchase anyway.
During the divorce process, “temporary orders” are normally put into place to prevent spouses from spending down assets or incurring new debt. Generally, major purchases are specifically forbidden without the involvement of attorneys and your spouse. Both spouses are usually instructed to spend only what is absolutely necessary to sustain their individual households. Often, a limit of $500 is placed on discretionary spending. Expenses above that amount may require the approval of the other spouse.
Many attorneys require the non-purchasing spouse to sign a special agreement to permit the purchase of a home during divorce proceedings. However, this agreement still doesn’t clear the title. Nor does this agreement address the non-purchasing spouse's ability or responsibility to make the mortgage payments once the divorce is finalized and support obligations are agreed upon.
It is also possible that purchasing a home during divorce could ultimately result in financial difficulties for one or both spouses. If one spouse is approved for a loan on a new home based on his or her current income and expenses, this doesn't take into account any settlement agreement obligations, such as future child support, alimony or a payout.
It may make more sense to rent a home temporarily instead of buying one. Even if in some cases it may be possible to purchase a home while going through divorce, it is generally ill-advised and problematic. Before doing so, consult your attorney in order to thoroughly address the legal aspects. And then, consult a divorce financial analyst who is experienced in dealing with the long-term effects of financial decisions such as home purchases, tax implications, future expected financial responsibilities, and other factors.
Join Patricia Barrett at her upcoming 2014 Houston Leisure Learning classes on Oct. 27. She will also be presenting at the Guide to Good Divorce seminars in Houston on Sept. 27, 2014. For more information on divorce financial planning or divorce mediation, visit Patricia's website, Lifetime Planning.
The information in this column is provided as a guideline and offers a general overview. For more specific details on these topics, please consult a Board Certified Family Law attorney and a Certified Divorce Financial Analyst.