Unable to Sell the House in Divorce with the Mortgage Under Water

The house is the primary asset that causes the most heated arguments, enormous despair, and ongoing financial/emotional insecurity. Financially, the house is usually the largest asset in the marriage, and the largest liability via the mortgage. Emotionally, the house was the home where dreams were embedded, where the kids grew up, and provided the daily stability in the lives of the family members. The emotional aspects get ripped apart during the divorce, but the financial aspects may also be dealt with well after the divorce proceedings are over if the mortgage is under water.

The House is One of the Biggest Divorce Assets

It would be nice and helpful to all if the house could be put on the market, sold for a good profit, the money split equitably, and the divorcees get on with their lives. Sometimes this happens but many times there is a battle over the house.

A number of scenarios occur involving the house:

· Woman tries to hold onto the house without caring about the overall financial situation. I have written before about the dangerous financial decision of the woman trying to hold onto the house in the divorce negotiations which has severe financial ramifications in the future. This decision is based on emotional aspects of the house and what it meant to the woman. Financially, the decision to sell the house is usually not complex.

· It is agreed to sell the house, but the delay tactics begin, normally by the party who did not want the divorce. Delays occur due to not liking the sale price, asking for many months in which to move after closing, simple procrastination in signing any documents, etc. Normally, this situation extends the divorce proceedings. Again, it is the emotional aspects of the house that cause the attempted delay tactics.

· The house cannot be sold for enough money to cover the outstanding mortgage. This is a very common situation today since house prices have dropped and the couple had taken on a large mortgage. It is this situation that I, as a Financial Planner, see occurring almost every day and is the concern discussed here.

The Non-Physical Divorce

A very common scenario seen today during and after divorce is that the couple cannot sell the house for a high enough price to cover the outstanding mortgage. Unfortunately, this situation can last for many years. Sometimes the couple are well enough off financially to have one party move into an apartment with the other staying in the house. However, the middle class average family does not have this luxury since they are just scraping by with the finances. So what do they do? If family lives nearby, hopefully parents, one party might move in with them. Many couples have no choice after divorce but just continue to live in the same house while trying to sell the house.

The financial impact of continuing to live in the same house after divorce is relatively minor if the couple could afford the house prior to the divorce. Husband my move into the basement or attic, and might eat out more than before. However, the household finances are close to what they were before the divorce, though there may be some exchange of money between the parties via child support, alimony, etc. The overall situation remains relatively unchanged, though possibly not good. If the couple could not afford the high mortgage prior to divorce and their finances were steadily declining, this situation will only get worse after the divorce if they continue to live together. They will continue to try paying a mortgage which will eventually force them into bankruptcy or foreclosure.

The emotional impact of continuing to live in the same house after divorce can cause many mental issues even if the divorce was relatively civil. The issues caused by having to see and interact with your ex spouse everyday can really take a toll on a person. The only thing that has changed from the marriage is that the couple is not sleeping (hopefully) in the same bedroom. The situation gets worse if one of the parties begins to date again, or even has a new partner move into the house – ouch! This is a recipe for disaster, though it happens constantly. Worse yet, this new type of dysfunctional household becomes routine, with the divorced couple continuing to live in the same house for 10 – 15 years. The long term effect of such a divorce on children could be much more devastating than if the couple had just parted ways after the divorce.

Balance the Financial and Emotional Aspects of the House

The couple really needs to make some hard financial decisions to prevent an emotional meltdown. A balance has to be reached between the financial aspect and the emotional aspect after divorce. The emotional impact of living together will only get worse over time. The financial impact will also get worse if the couple does not act. The answers are not easy but the couple needs to consider them to survive individually long term.

· Consider selling the house even if the selling price will not cover the mortgage. Look at the overall financial situation and get needed help to determine if this is doable, even if it will force the couple into bankruptcy

· Such financial planning help can also determine if a short-sale can be accomplished, in which the bank will agree to a selling price less than the amount of the mortgage

· Look at the emotional gains that you will accrue by finally making the divorce a physical divorce rather just on paper.

· At some point in these divorce situations, the ex-couple realizes that the emotional aspects outweigh the financial aspects and take action. Unfortunately for many, this realization should have occurred years before when the divorce originally occurred.

The point of all this is not a How To on selling the house when the mortgage is under water. The theme to think about is that living together after divorce is a very unhealthy situation for all involved.