Purchasing real estate can be a daunting prospect at any point in life. However, if the purchase is the result of financial negotiations related to divorce or separation in mid-life, this decision is even more daunting due to variables of health, wealth, retirement and fluctuations in earning capacity.
If you’re considering making an initial or secondary real property purchase as a result of a divorce or separation where mortgage financing may be involved, here are five key points to keep in mind.
- Check Debt Levels First to Determine Financial Risk
Ever since the housing crash of 2008, it’s been a challenge to negotiate and qualify for the purchase of real estate.
Before beginning the house hunt, it is very important to completely review your current financial status. For purposes of marital dissolution, keep in mind how much operating capital will be available via spousal support and the allocation of the marital financial assets.
Pay particular attention to how much debt you are carrying now and may carry after the divorce or separation. Establish a plan to either eliminate or reduce these obligations. Mid-life real estate purchases allow very little margin for error due to timing and the natural aging process, and should therefore be accomplished in an atmosphere where debt and expenses are a very low percentage of living requirements.
Look ahead to potential life changes that could affect your expenses and debt, such as:
- Financing education for older children and/or the necessity for those children to move back in with you due to career or financial hardship.
- Overseeing the care of an elderly parent or other family member.
- Determining the stability and longevity of employment or business opportunities.
Consideration should also be given to insurance products that will provide mortgage payment protection in the event that something catastrophic occurs, so as to avoid foreclosure or having to sell the real property.
- Purchase a Property Below What You Can Afford
The financial mantra to always live below your means is particularly relevant for mid-life real estate matters. Due to potential fluctuation in income and employment status, it is important to have a realistic view of just how much property you can afford, given the relevant debt-to-income ration. Taking a step down from the high level of what you can actually afford (or could afford during the marriage) and taking a careful look at the allocation of marital assets during divorce will crate an environment where you an establish a cushion for illness and/or disability. This will help to avoid the situation where there is insufficient income to make the mortgage payment without having to disturb retirement, fixed assets or other investments.
- Make a Significant Down Payment to Lower Principal Amount Owed
If there are sufficient assets that can be liquidated without risk, consider using these funds to provide a larger-than-normal down payment amount. This will result in a lower monthly mortgage payment and could also help to shorten the amount of time for the mortgage payoff.
- Pay Attention to Accessibility Issues
Think carefully about what will be necessary to enjoy your home as you advance in age. Take into account the following questions as you evaluate a property:
- Is it better to have all living and entertainment spaces on one level to facilitate caregivers and mobility around the home?
- How do you reach the front or side doors—are there steep hills or inclines that could be dangerous for falling or sliding?
- Are cabinets in the kitchen and bathrooms easy to reach for access and storage of items?
- How far away are services for shopping, medical, vendors for home services, care repairs, etc.?
Taking stock of your lifestyle requirements is an intentional process. Formulate the questions and concerns that are tailored to your life and keep these in the forefront as you decide on a real estate property.
- Make Sure the Estate Plan is Up to Date For Succession Planning
Real estate is a very significant asset that should not be left to chance.
Consulting with an estate planning professional during and after the divorce or separation process to ensure that the details of who, when, why and how the real estate will be handled upon death or incapacity will provide peace of mind and guidance for you and your heirs.
Consideration should also be given to the tax implications involved in succession planning to guarantee that the appropriate process for trustees and beneficiaries are established.
Also keep in mind that estate-planning documents should be regularly reviewed and modified to reflect and necessary changes.
Source = Karen D. Sparks / Divorce Financial Strategies