A friend of mine is going through a divorce and one of the most influential considerations in these cases, is unfortunately financial. He and his wife are not fighting over assets, they are not millionaires who are bitter and looking to hurt each other or get some kind of revenge. They are just people who have drifted apart and have called time on their romantic relationship. And with children, they will forever be tied to each other, so being amicable is in everyone's best interest.
However, even when the divorce is going smoothly, it doesn't mean that the financial challenges aren't there an this is especially true for those who have been together for a long time - like multiple decades. Because finances start to intertwine early and often there is one that might earn more than the other, which has enabled them to have a good life together, but changes the dynamic if apart.
For instance, in the case of a house that has a mortgage, when a couple are together they might be able to afford it relatively easily, but when apart, even the one with the higher income might struggle. But, there is more to consider than the current mortgage, because the couple together each have 50% stake in the property, which means when they split, there has to be a "payout" if one chooses to stay in the house.
Is it better to sell?
Well, this depends on many factors, but what has to be considered is the equity in house, potential value of the house, the current market and whether selling will provide the deposits required to purchase two suitable apartments or houses. Previously, the couple needed one deposit for the loan, but now they would need two. And of course, the smaller the places will be, the higher the relative price per square meter, so the higher the likely total deposit would be required. Plus, if they have children, they would each need rooms for them, so a studio wouldn't be possible for either of them.
So, it might make more sense that one moves out, taking their relative share of the equity in the house, and the one who is earning more stay in the house. However, it still becomes tight for each, because it is unlikely that the one staying has the cash laying around to buy-out the other, which means doing a deal at the bank to extend the loan terms in cash to pay out the one moving. This give the one moving some benefits, because they have less liabilities, but the amount they get (depending on collateral) might not be very high.
For instance, I bought an apartment with my ex-girlfriend in 2008 after renting for a few years, but it was only two years later that we split up. She couldn't afford the apartment by herself, nor did she want the car which we also had a loan on, so due to my own situation, I extended the loan, gave her the half she required and we parted ways. However, the "half" wasn't half of the collateral we had (which wasn't much over the two years), it was also the half of the value increase in the property, which we had done some renovation work to. This means that after all was said and told, she got a small sum of cash, which helped her get another place to rent, and furnish it.
But the "value" of the apartment depends on the market at the time and it hadn't increased so much, because it was against the backdrop of the 2008 financial crisis. This means that we got it relatively cheaply, but it hadn't increased much to 2010. However, when I sold it in 2015 (some more surface renovations done), it was worth a fair bit more, giving a decent deposit on my new relationship's first apartment - the one before the house we are in now. This is of course part of the "risk" of being the one to move out, because while it was a very big struggle for me to hold onto it in a challenging economy at the time and me being a freelancer, making it through helped set me up a little more than I would have been otherwise.
But because of this risk, the one moving out can try to affect how much they are going to get out of the house, by trying to highball the value. However, it is in the financial best interest for the one who has to pay them to lowball. Still though, what has to be considered is the value the property can be sold at on short notice now, not the value in the future. Because, if for instance I had paid her significantly more, the loan increase to service would have been larger and if I defaulted and sold, it would have meant not being able to sell it for high enough to cover the loan, meaning I would still be in debt, and own nothing.
However, when children are involved and in an amicable split, these kinds of things can be worked out in a side deal, where for example, if selling the house down the track for significantly more, some money could be given. But with children involved, the value of the property is likely to benefit them anyway.
Having said all of this though, my friends situation is never an easy one to deal with, because it brings up topics that most of us don't like talking about, with people we care about, at probably one of the hardest times in the couple's lives together, or apart. There are a lot of emotions and of course, a lot of second guessing and worry about just what happens once apart. I know that my friend is concerned that he might not be able to cover the mortgage, even though I am pretty sure he will be able to. His partner is worried too of course, because they haven't been alone the vast majority of their adult life either and they have been each other's person of support for decades.
This is why it is important to consider the financial ramifications of divorce rationally too, because the outcome of splitting assets will affect both people, although perhaps in different ways. Neither wants the other to struggle, but also, neither wants to be the one who is forced into struggling, so the other can be comfortable. If they were still a couple, they might be willing to actually make that trade, but splitting up, it is no longer likely, or a good outcome for anyone involved.
A win-win is optimal.
But of course in this situation, it might be a lose-lose situation, so it is about mitigating the loss. Both parties are going to be financially worse off, because they will be shifting from pooled resources, to having to maintain two of everything. Housing, furniture, and insurances, as well as food and other items that they were able to cost average down.
At the end of the day, I have told both of them, that regardless of what happens, It will be okay. Things will work out, neither of them will be destitute, and their children will not be irreversibly damaged, as they are now well old enough to fend for themselves and look at this more rationally too. Still though they have to consider their future apart, and a big part of how they walk into that future, is going to depend on how they walk away from their present relationship.
While I don't like to see either of them go through this pain, I am glad they are being adults about all of this, because so many couples these days treat divorce like they are celebrities fighting over hundred million dollar estates in the tabloids. So much drama - so little common sense.
Taraz
[ Gen1: Hive ]
