53 💼 Divorce this HOUSE? Keep, Sell, Buy or Refi [CDFA Deanna Brown]

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Today's guest is a Certified Divorce Financial Analyst who is here to talk about a pressing subject for many of my divorce coaching clients-- the Financial ramifications of the decisions that surround whether or not to keep the house, sell the house, refinance the house, etc. It's a big decision! Where to live is first and foremost an emotional choice, but it is one of the biggest pieces of the financial puzzle of divorce, so please don't make this decision based solely on how you FEEL. Listen in today as a financial  expert well versed in divorce explains how to make this decision WISELY.

If you have any questions at all during your divorce, please email Annie@StartingOverStronger.com or visit www.StartingOverStronger.com to learn more about divorce coaching and book a complimentary discovery call while you're there.

"Can I keep the house?" Find out more about what an RCS-D REALTOR does to protect you as you make this decision. www.AtHomewithAnnie.com.

If you have ideas for topics in future episodes or to ask a question for a future ASK ME ANYTHING episode, please email Annie@StartingOverStronger.com. 

Gratefully,
Annie
 
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Transcript

Divorce This House? Keep, Sell, Buy or Refi 

[CDFA Deanna Brown]

Annie Allen: [00:00:00] Divorce this house. Should I keep it? Should I sell it? Should I buy something new? Should I refinance? How on earth are you supposed to decide all of this? Who's going to get it and how you're going to divide the equity? What really makes sense in the end for you in the long term? Today, we're going to talk about exactly that with Certified Divorce Financial Analyst (CDFA), Deanna Brown, stay tuned.

Announcer: [00:00:45] Welcome to the Starting Over Stronger Show where you'll find help and hope for your divorce survival and recovery. Divorce well, live well.

Annie Allen: [00:01:04] Hello and welcome, Deanna Brown. Thank you again for being here with us. 

Deanna Brown: [00:01:08] Hi, Annie. Thanks for having me. 

Annie Allen: [00:01:10] It's really great to be here. I'm excited about our conversation. I've already told the listeners a little bit about what we're going to be talking about today. So let's just start by having you tell us a little bit about you.

Deanna Brown: [00:01:20] Wonderful. Sure. So again, my name is Deanna Brown. I am a certified financial planner professional. I also am a certified divorce financial analyst. And I am the founder of 'BagLady Divorce', empowering women before, during and after divorce. So I've been practicing financial planning and investments for over 20 years now. Through my practice I've found that I can be of great help to women before and during the divorce process where I can help empower them. I love the word empower. Also help them with the financial decisions to be made regarding assets and liabilities. It really is a business decision of splitting assets during a divorce I help people with that and then help them, after the divorce, to grow those assets. And if they're getting alimony or child support then help them with the cashflow when they need to supplement once those two income flows end at some point.  So again, I am a wealth advisor. I help people with financial planning investments, but I have a real passion for helping women before, during and after divorce.

Annie Allen: [00:02:32] Well, I can hear your passion. And I know that everybody listening already knows that divorce is disruptive, and it's always good to meet with as many professionals as you can to smooth that process out. And as we all know, divorce is largely financial and emotional in the disruption that it causes. Thus having someone like you on their team is definitely a game changer. So as such one of the big, important questions that often informs our clients of what direction they want to go is ,what to do with the house? As an RCS-D realtor, I do work with clients on fulfilling the data that's needed to be able to make a wise and well-informed decision about that so that it's not an emotional decision, but one that makes sense long-term and won't lead to regret or financial harm. So today I want to talk through that with you from a perspective as a financial expert on just kind of weighing out all of the decisions. The way I see it, there's really four decisions that are being made with regard to the house. Hence we are going to talk through those. So. What are your opening thoughts on the real estate decision at large with the divorce process? 

Deanna Brown: [00:03:48] From my experience Annie, I found that a lot of times when you talk about money, it brings up a lot of emotion.  Unfortunately we make decisions with our emotions instead of with our brains.

Many times those may not be the best decisions for us. I've also found that a lot of times going through the divorce process, some women are very adamant about keeping their home and I can't blame them.  It's a place where they raised their kids. It's a place where they feel comfortable. They have security, they have all these memories that they've created in this place.  Sometimes from a financial standpoint it may not be what's in their best interest and what would fit their new life. This is because they are starting over stronger.  They're starting over again. And this house may not fit in what they are going to be creating, which is a new life for themselves. 

Annie Allen: [00:04:56] Yeah. 

Deanna Brown: [00:04:57] I have a personal story about that. My mom and dad got divorced and this  was when I was  in my early twenties. My mom had gotten the home in the divorce, which is great. She was so adamant about getting it. And I said,  it's just a house. It was a big house too. I was already through college and my sister was getting ready to move out and also my brother. So it would just be her mostly in this big old house. And the way that the divorce settled is that my mom was to get alimony from my dad.  Sometimes my dad didn't pay the alimony or he paid it late. And my mom relied on that alimony to make the mortgage payments. So there were some months where she couldn't make the mortgage payments and unfortunately over a few years she had nothing out of it. This house which she thought was her biggest asset that she was going to use for retirement one day was lost because dad didn't pay her alimony. She wasn't able to make the mortgage payments. Then everything that she had built, the equity in that house, all disappeared because eventually the house was foreclosed on. You don't get to keep the house anymore, was the situation. And she tried to sell it and unfortunately wasn't able to sell it. I just remember the day when she called us and said, "come to the house, we have to pack everything up. The house is being foreclosed on and they're coming tomorrow to change the locks." 

Annie Allen: [00:06:33] Oh, gosh. 

Deanna Brown: [00:06:34] And we had to rush over there. I remember this as I was eight months pregnant and packing boxes and getting all her things. We couldn't take everything as it was a 4 bedroom house. We were  scrambling around trying to find her an apartment to move into.  That's why you have to think about these things from a financial standpoint and get a professional to help you. And that's why I'm so passionate about the topic that we're talking about today. I want to make sure that if you are going through a divorce then you're looking at all aspects of it because if you're in the middle of it, you're very emotional and you may not be able to look at it. You might be confused as in, maybe I shouldn't do this, or maybe I should do that, because you can't think properly.

Annie Allen: [00:07:20] Right. That's really the whole problem.  Studies show that your ability to reason emotionally and intellectually during a divorce is decreased by as much as 30%. So you think you're thinking the same as you did before and at normal functioning, but you're really not. That's why a team of professionals around you is so important. I am so sorry to hear the story of your mom's situation with her real estate but it's a cautionary tale for all. I wish that it was the exception to the rule but the truth is it happens all the time. In fact, the reason the RCS-D realtor designation exists and people go and get that training is to help avoid not only foreclosure, but bankruptcy and failed loan origination, and failed refinance. Because a lot of the time, these decisions are being made emotionally and people just kind of have a perspective that their attorney is going to know everything and do everything as they go through their divorce. But the truth is your attorney is a legal professional. They're not real estate professionals and they're not financial professionals. And that's why you need a team. And I think it's especially interesting that you said earlier, you used the term that "the house may not fit or what it is that you're wanting to do with the house may not fit your new life" I think that was a really interesting way of putting it because there are a few ways that it might not fit. It might not fit financially because like you said, if you're going to rely on alimony or any level of support to finance that mortgage payment then it's risky because you can't guarantee it.

You can be awarded alimony or support by the judge and might think it's going to come every month, but it doesn't necessarily mean it's going to. The question then arises is what are you going to do if it doesn't. Also it may not fit, not only financially, but it may not fit physically. You also mentioned that your mom's house was really big, like she didn't need that much space, but she clung to it for those emotional reasons of 'this is where all the memories are and this is where I just have to stay'.  That's kind of the other way it doesn't fit. Sometimes it doesn't fit emotionally. Because the truth is that the memories are in your mind and in your heart, not in the four walls of a house. And if moving somewhere that's smaller and more affordable allows you to live a life that's more peaceful and stable and maybe also gets you away from some bad memories, then sometimes a fresh start is exactly what you need. And it's hard to see that sometimes in the middle of it. 

Deanna Brown: [00:10:01] Yeah. 

Annie Allen: [00:10:02] So I think it's important to think about it from all of those perspectives because  everybody says that the house is the number one asset, but that's actually the biggest liability in divorce. The number one asset is actually your credit score and you need to protect that as you go through the process, because that is going to affect so many things as you go. So what we want to talk about today is just, how do we know what to do? There's so many options. I look at it like four different options. Should you keep it? Should you sell it? Should you refinance it? And should you buy a new one? And so I just want to kind of talk about it from those four different perspectives. 

When do you think Deanna is someone  who's planning whether to keep or sell the home, what do you think is the best time for them to start having that conversation with themselves or with you or their attorney or whoever?

Deanna Brown: [00:10:57] I think the best time the earlier the better. 

Annie Allen: [00:10:59] Yeah. 

Deanna Brown: [00:10:06] You have to think about what you want for your life? How do you picture your life? And I think if you're contemplating the divorce before the divorce you need to think about how do you see your life without your spouse? Do you see your life still in this home or do you see your life somewhere else? Maybe you don't even want to stay in the same town anymore. Maybe your family is in a different city and you'd like to move closer to them. Maybe your kids are grown up and they've moved somewhere else. Maybe you have grandkids and you want to be closer to them as well. So you really kind of have to think about what you want for yourself.

And then once you're in that divorce process and you've hired an attorney you have to think about what you want. A lot of times they say don't make any drastic changes. If you lose a loved one, if you lose your spouses from a death, don't make any drastic changes. But I can tell you that I have worked with a lot of high net worth women through divorce, and one of the most empowering things that she could do for herself is to make a life for herself and to get her own home. No matter if it means buying a new home or renting something until she can figure out what she wants. It's very uplifting. And I think that the earlier you can start having these conversations with yourself the better, and then communicating that with your attorney. Because when you're in the negotiation of a divorce and I can give you an example of the negotiation. I had a client that had a $2 million home at the beach and she was not emotionally attached to it, but he was. So, you know what she did, she used that to her advantage in the mediation and said, "you really want this house. You don't want to sell it, you want to stay in it." so she was able to leverage that and get what she wanted from the divorce. So she got retirement assets, cash, and investment accounts. Because she couldn't really care less about the house. And so she wanted to sell it, but he didn't. So she was able to get what she wanted because she knew what he wanted and what he wasn't willing to give up. Thus, she was able to take advantage of that because when she was thinking about her new life she knew it wasn't in that house. 

Annie Allen: [00:13:19] Yeah. And you know what, that was  my exact situation. It wasn't a $2 million house though, but it was a house that I didn't want and he did. So, I did use that in the negotiations and I didn't feel like I was necessarily taking advantage of it in the way that maybe some people think of taking advantage of something. It wasn't really an advantage or disadvantage. It was just, that's what I wanted and that's what he wanted. So I wanted my half of the equity and he wanted the house. So, we were able to use that as part of the negotiations and that's not taking advantage in the bad way. It's just being smart.

Deanna Brown: [00:13:53] Well, when you think about business negotiations, there's different strategies involved, and you have to remember that a divorce is almost like you have a partnership and you've built assets over the years and now you're going to split them. This is like a business decision. Take the emotions out and negotiate and try to get the best deal because you've got to advocate for yourself and get the best deal for yourself. Once you make that deal, there's no duo. You can't say, "oh, I wish I had gotten this or wish I had gotten that." That's why you need to start thinking about what you really want in life and also what does your soon to be ex spouse want?  Then start those negotiations. 

Annie Allen: [00:14:35] Exactly taking the emotion out of it is the hard part. 

Deanna Brown: [00:14:39] It’s very hard. 

Annie Allen: [00:14:37] That's why I think having a team is so important because you want that legal professional that can actually do the divorce, but you also want that financial professional who can help inform all of these different decisions and how it all comes out on the marital balance sheet.  No doubt the emotions are going to be there and it's really hard to extricate them from all of that without some support. That's what certified divorce coaching is all about. It Is about being that support person on the team that helps to regulate all of the emotion and improve the communication skills so that the legal professional can do their legal work and the financial professional can do their financial work and so on and so forth.

So it's important to have that team. When you think about whether or not to keep the home a big part of that is, how does the mortgage affect that decision? So what are your thoughts on that particular piece of it? 

Deanna Brown: [00:16:55] The mortgage is a big deal. You've got to look at what you owe. What's the value of the home? So remember in 2008, 2009, when we had the real estate crisis, a lot of people were underwater in their homes. That's not an asset that you would want, if your home is valued less than what your mortgage is. 

Annie Allen: [00:17:13] Yeah. 

Deanna Brown: [00:17:14] So right now we're in the opposite situation because real estate prices are going sky high. At least it's a sellers market, but you have to take into account, what is the mortgage? How much is that?

What is the payment, what is the liability?  The rule of thumb is, I'm not saying this is for everyone, but whatever you figure out your income is, your housing expense should be about 30% of that or a third. So you have to look out what is my cash flow and what is my mortgage going to be. If you currently have a mortgage and you're thinking about keeping the house in divorce, you're gonna have to get that refinanced.  You can't just take it over. You can't just take over a mortgage, you have to qualify for it, which means you have to have income.  If you have divorce income, you have alimony, then they want six months worth of alimony for you to refinance it. So you may not be able to refinance it.  I'll just tell you a quick story.

This is a true story. I had a client who came to me after the divorce. I wish it was before, but he got the home in the divorce.  There was a mortgage and he couldn't refinance it because his wife was the breadwinner.  So, he didn't have the income to refinance it. So he kept his wife on the mortgage. So he never got retitled. He was supposed to get full equity. It was $400,000 in equity and his kids were to get that at his death. Well, he died. He was like a super young guy. And because he never took care of that piece of business, he never refinanced it. He never put it in his own name. Instead of the $400,000 going to his kids, his two boys after his death, half of that went to his ex-wife. Eventually the kids lost out. Now I don't know what the ex-wife did with the money. Maybe she gave it to her kids. I'm probably thinking not, but I mean, you have to think about that. You might think that your ex spouse is going to do the right thing but it is not always the case.

It's not easy to refinance. Ever since the 2008, 2009 financial crisis we had, and you probably know more about this than I do Annie, about mortgages and what it takes to qualify for them, but it's not as easy as it used to be.  So you really have to think about that. 

Annie Allen: [00:19:34] Yeah. It's definitely not. And in fact, you mentioned six months of alimony. It may be different state by state. I'm not sure, but at least here in Missouri, Kansas, it's three years. 

Deanna Brown: [00:19:45] Oh really! 

Annie Allen: [00:19:45] They won't refinance you unless you still have three more years coming of alimony. If you're using that as part of your qualification. So it's a big deal. And why lawyers and judges are negotiating divorces that order one person or the other to refinance when they don't even know if they can. I don't understand. That's beyond my pay grade, I guess. Because why on earth would the highest seat in the nation tell a person you have to refinance without knowing if they even can. These things get put into the divorce decree because that's what's decided either between the parties or by the judge that this is what's going to happen. But then they find out that it can't. And the fact is you can find out now before the divorce is final, whether or not whoever's thinking about refinancing actually can refinance.

Deanna Brown: [00:20:40] Sure 

Annie Allen: [00:20:42] They can pre-qualify now to know whether they can refinance it or not. And then obviously maybe make different decisions if they find out something they're not expecting to find out. The other thing that floors me is that people keep their ex spouse on the loan and don't make any changes to it and just take over payments. What a huge risk to that person that's not living in that house anymore. For one, you're probably not going to qualify for a house of your own and two, they could destroy your credit by simply missing one payment which will result in you dropping a hundred points in your credit score and it will stay that low for a year or two years, maybe. It just absolutely floors me that people put themselves at that kind of risk and makes me wonder why.  To me there's no logical reason not to get the actual full separation of these two parties during the divorce process. And whatever way it is decided, whether that's one of them keeping the house or not. To me it just doesn't make any sense at all to go through the time and trouble and expense of a divorce, and then keep that huge of an asset together.

Deanna Brown: [00:21:48] Well, if you're going to keep the house and you have a mortgage on it and you don't qualify to take over that mortgage, a bank will not give you the money to keep that mortgage. Then you have no business staying in that house. 

Annie Allen: [00:22:00] Why would you want to be house poor? 

Deanna Brown: [00:22:03] Oh my gosh. 

Annie Allen: [00:22:05] I can't think of a worse position to put yourself in as you're going through a divorce and trying to start over. Everything is so unstable and unknown. There's just so many things that you can't know right now, as you're going through divorce. Why would you put yourself in a position where every possible dime that you can scrape up is going to go to a house payment? It just isn't logical to me. There's not a lot of logic that goes into this decision. Sometimes it's a lot of emotion, unfortunately. That's why we're here talking about this, because what happens if you keep the house and you can't get the mortgage in your own name? Or you don't qualify for a mortgage. There's a lot of different things that can happen. What have you seen? 

Deanna Brown: [00:22:47] Yeah. There's so many scenarios and not just scenarios, there are real life examples that I can use to show that it doesn't make any sense. It might make sense if you get the home and maybe it's paid off and then you still get a couple million dollars and in your divorce. Then that might work.

Annie Allen: [00:23:10] Or I've seen a situation where a woman negotiated to have the house mortgage paid down enough that the payment was affordable for her, with her new income, after the divorce, as part of her equity split or as part of her division of assets. The settlement that she was going to get,  he paid off enough of the mortgage that the payment was something she could handle on her own, which makes sense.

Deanna Brown: [00:23:40] It does. And you know, what just came to mind is I was just talking to a client of mine who went through a divorce. And this is something that you can give your expertise Annie, as a coach. I just had this conversation with her yesterday. She said, when she got her divorce she did not stay in her house because the friends they had that she thought were her friends didn't want to be her friend anymore. And they were all people that lived in their community and she said because they got divorced that was it. They didn't want to be friends. And she said, I thought they were my friends and that was very eye opening. So she had to get the heck out of there because she didn't want to be around all of these people that identified her as being married to this person. Now that their marriage was no longer they didn't want to be associated with her. 

Annie Allen: [00:24:28] Yeah, that's honestly one of the saddest parts of divorce and oftentimes the most unexpected. People know when they're going into a divorce that they're going to probably struggle financially and emotionally, but they don't have any idea apart from financial and emotional problems. As a divorce coach, we talk about four divorces, the legal divorce, the emotional divorce, the financial divorce and then the social divorce. The social one is the one that throws everyone off because they don't think their family and friends are going to do that to them. And then they do. And they're just like their whole world is rocked because they don't feel like they know anybody anymore and they literally have to move somewhere else. Whether it's another house or another city or another state and start all over again with new friends and new everything. It's just so disorienting and it's so unfair and it's so stupid. And I don't use that word lightly. I don't use it very often either. It is so stupid to choose one party over the other in a divorce and not be at least friendly with the other party. Then on the other side of that coin, some friendships are inevitably going to change, because maybe you were friends with someone because you were both couples and both parties in the couples enjoyed each other but now that whole element is gone. So the friendship doesn't make as much sense anymore.

Deanna Brown: [00:25:53] Right. 

Annie Allen: [00:25:54] So I can see why some friendships would sort of get weird and sort of fade away, but then sometimes it's even more abrupt than that. It's often just people picking somebody else over you.   It's a really tough thing to go through. 

Deanna Brown: [00:26:09] It sure is. That's why I think that having a coach to get you through this very difficult process is so important. I'm not a coach and I am a financial expert but I hear these things and unlike you, Annie, I don't know what to say. I'm like, I'm really sorry. I didn't realize it was those four things that you're going through, the legal divorce, the social divorce and others, that makes so much sense to me. Also when you look at making decisions, it's not just black and white, there's all different aspects and different things to consider when you are making those decisions.

Annie Allen: [00:26:52] There are a million things to consider. And so as we think back about the house and just all that goes into that, I know one question that comes up for some of my clients is should I buy, or should I rent? If they've decided not to keep the house, they want to know that does it make more sense financially for me to go ahead and buy something right now or rent something for a while? I will interject that in my own situation I chose to rent for about 18 months after my divorce was final for a few different reasons. One, I didn't yet know at the point that I moved out of the marital home what the financial situation was going to look like. So I wouldn't have qualified for a loan to buy. And even if I did I don't think I would have, because my son was near graduation from high school and he was my youngest. Further we were living in a community that we had lived in for 15 years and I had wanted to move for some time.  But I didn't want to put him in a position where he had to drive long distances to get to school or that it would be more convenient for him to just stay at his dad's instead of with me if it was a school night or something. So I chose to rent in the community that we lived in very close to his school so that it would be a comfortable transition for him during that first year after the divorce. Once I got my financial situation settled, I was able then to move a little bit farther away, not that far 30 minutes or so from there.  My son had the option to do whatever he wanted to do because he was 19 at that point. But it allowed me that time to breathe, time to let the dust settle and time to really decide on where I want to be because I really had enough closure with the divorce to just be thinking a little bit more clearly again, by that  point. So that's my thoughts on whether or not to own or rent. But then I've seen situations where somebody goes right into a newly purchased home and it works very well for them. So I think it goes both ways. 

Deanna Brown: [00:29:03] I totally agree. I think it goes both ways. I've had clients that were able to buy homes right away. They wanted to start rebuilding and having something permanent for the new chapter in their life. But a lot of times they use cash to buy their homes. They don't get a mortgage because they don't qualify. And you have to look at what is their cash flow, what was the divorce settlement? How much can they afford to buy, especially if they're buying cash, because if they're using their assets or money for cashflow, will it support their lifestyle? So those are things that I plan for. And then I've seen some people that have rented. And that's better for them because like you mentioned earlier, they don't want to be house poor. They want to be able to travel. They want to be able to explore their hobbies and they want to be able to see their kids.  I had a client yesterday that I helped through divorce. I had another client that I had lunch with. And she said my daughter and her husband are buying their first home. I want to give her a hundred thousand dollars. I said, great. Let's do it. So you have to weigh out these things.  Again, it comes back to what do you want? If you're not really sure then renting might be an option for you. And even if you let's say there's an area in town here in Florida, it's a very expensive area of town and if somebody was living there with their spouse and they had a home and they have this certain lifestyle and they want to stay in that area. After the divorce, they may not be able to afford to buy a house in that area because it's so expensive, but they might be able to rent an apartment in that area and still be able to get to their aerobics class or their yoga class basically stay connected with their community. Or they may not know what they want and renting would be a good option so that it buys them some time to figure out what that is. 

Annie Allen: [00:31:07] Absolutely. How did the taxes factor into this with regard to selling the home? 

Deanna Brown: [00:31:13] So it's really not as complicated as it used to be. This is what I would say, you need to watch out for, if you bought a home and you have a gain of $500,000 or more in it, which is probably very possible now because the market has been going up so much and you're married you can sell and have that $500,000 gain and not pay capital gains tax. Now, if you have a $500,000 gain and you keep the home and now you're not married anymore, and then you sell it and you're a single person, you only get half of that. So you only get $250,000 exempt from tax, which means if you have a $500,000 gain, you would have $250,000 in gains that you would be taxed on capital gains tax. So you can say bye-bye to 15 to 20% in tax. That's going to go to the IRS (Internal Revenue Service) just because of your timing. So you really want to watch timing on that. If you're going to sell a home, whether or not, if it's highly appreciated, if it's something out at the beach or something like that, and it's got that $500,000 gain, you really want to be careful with your timing when you sell it. Whether you sell it by yourself, or you sell it jointly during the marriage, because again, 20% of $250,000 is a big chunk of change. And then two this is kind of going back to the renting. Again, Annie, with renting, you have one payment but with buying and owning even if you buy a home cash, you have to think about association dues, condo dues, if applicable insurance payments, homeowners, insurance etc. And also the property taxes depending on where you live in the country can be pretty hefty. I mean a thousand dollars a month in property taxes is very normal. So you have to think about that as well. 

Annie Allen: [00:34:27] Yeah. And a lot of times, if there's a mortgage that's factored into your payment, so for anyone that's listening, in that situation it wouldn't necessarily be an extra payment. Your taxes and insurance are going to be a part of your mortgage payment. But again, that's only if you have a mortgage and it's something that you're able to get in your own name on your solo income. So there are a lot of ifs, unfortunately. 

Deanna Brown: [00:34:52] Yeah. 

Annie Allen: [00:34:53] Okay. So is it apples to apples when dividing up cash versus retirement accounts and investments versus the home? How does that all factor together? 

Deanna Brown: [00:35:01] Okay, so cash is king. Liquidity is king. So when you're dividing cash, retirement, real estate, you want to look at and consider what is the most liquid. And when I say liquid it means what's the most flexible asset. So if you get cash you can pretty much do what you want with it, right? 

Annie Allen: [00:35:20] Yeah. 

Deanna Brown: [00:35:22] If you get a retirement asset, like an IRA (Individual Retirement Account) or 401k (contribution retirement account plan), depending on how old you are, you're going to be subject to not only income tax when you use that money, but also a 10% penalty if you're not the right age i.e. You are too young. Then comes the home, which is the most non-liquid of all three. If you have a home and you keep it in the divorce, you can't use that to go on vacations. You can't use that to give money to your kids. Again, cash is king, it's liquid and you have to look at it that way. So for the lifestyle you want, this is going back to being house poor.  If you split the assets and you wind up with the house, but not a lot of the cash, well you need to come to terms with that you're in that home and that's what you've got and it's going to give you less flexibility as far as the things that you want to do or the places that you want to go because you'll pretty much stuck in the house. So that's why it's not apples to apples. You've got to look at it again from a flexible viewpoint and see which of those things is going to help you when you're restarting with this new chapter in your life and what do you want your life to look like after the divorce.

Annie Allen: [00:36:43] Yeah. And if you really want to impress your attorney and your soon to be ex then learn a little bit about the current value of future money and use that to your advantage when you're dividing up cash and retirement accounts and investments in the house, because not every dollar is equal. So talk to us about that.

Deanna Brown: [00:37:01] Well, we have this thing called taxes, unfortunately. (Ha-Ha)  It's like the biggest fear, it's like we fear taxes and dying, right, and public speaking. (Ha-Ha) So when you're dividing up assets with your soon to be ex spouse, you definitely want to look at the tax situation. And a lot of times when people say tax it's like you go on snooze mode. I mean, what's less exciting than taxes, not much. But it's so important because if you take a cash account, a savings account. There's not much tax there.  It's not that much. When you look at an investment account, you need to look at something called capital gains and I've seen some couples where somebody will be working at a company for 30 years and they've gotten all the stock in the company and they barely paid anything for it. And then the surprise you get in the divorce when you go to sell it and you face something called capital gains tax. So depending on how much you make it ranges from 15 to 20% in taxes, and then you have retirement assets. So, when you look at retirement assets, Again, depending on your age, you're going to pay ordinary income tax, which just means it's based on where you fall in the tax bracket when you take the money out to use it. Then if you're not 59 and a half and you take that money out, there's going to be a 10% penalty on top of it. So one of the worst things I've seen is people who go through divorce. They get retirement assets and they want to use their retirement assets to buy a home.  Just think about it. If you take money out of a retirement asset, like an IRA or 401k to buy a home, you're paying, let's say 20% in income tax. And then if you're not 59 and a half years old, another 10%. So you're giving a third of that away to the IRS. That's not a good use of your money. 

Annie Allen: [00:39:08] Not at all. And if that's the only way you can buy a home, then you should not buy a home right now. That's the truth. 

Deanna Brown: [00:39:14] Going back to the point that you have no business buying a home, you don't qualify for a mortgage and you've got to use your retirement assets to buy it.

Annie Allen: [00:39:22] Yep. So when we think about the four things, should you keep it? Should you sell it? Should you refinance it? And should you buy it? Let's just take just a minute and kind of break that down a little bit. Who should keep the home, who's in a good position to keep the home? 

Deanna Brown: [00:39:36] Okay. Somebody in the good position to keep the home might be someone who qualifies for the mortgage. If there's no mortgage, they have at least 30% of their income which can go to pay for condo dues, property taxes, insurance, upkeep, maintenance etc. You also want to keep in mind that you need to have some type of emergency account as well to keep the house. 

Annie Allen: [00:40:01] And I would like to interrupt you just for a minute on that exact point, because one thing that a RCS-D realtor does is help especially woman or underemployed or less employed party in the divorce who wants to keep the house by fully informing them about the decision and what the decision has to do with the condition of the house. You've maybe lived in it for 10 or 12 or 15 or 20 years, but would you ever buy a house without an inspection? 

Deanna Brown: [00:40:29] Oh, my God. I'm so glad you said that.

Annie Allen: [00:40:33] But people do it all the time. You can do an inspection as a pre divorce inspection as part of your decision-making, because guess what? There might be a crack in the foundation. There might be a sewer line that's about to fail. There might be any number of things. Maybe the HPAC (Heat Pump Air Conditioner system) is about to go out. These are $5,000 to $10,000 expenses that someone might not be able to afford to deal with after being awarded the house in the divorce. 

Deanna Brown: [00:41:03] Oh my God. You're so right. Yeah. You have to look at it as a buyer.  You wouldn't buy a house without an inspection, so you need to get the inspection and then if you do keep the house again, it goes back to the negotiation. If the house does need a new roof and the roof is going to cost you $20,000, well, you need to bring that up in divorce negotiation and get the $20,000 to repair it. 

Annie Allen: [00:41:26] Yeah. And you wouldn't buy it under appraisal either in most situations. So you need to make sure that it's being adequately and appropriately appraised for its value before you use that as one of the factors in the marital balance.

Deanna Brown: [00:41:40] I love it. 

Annie Allen: [00:41:41] Yup. There's a lot of things that get missed when people just have that mentality, just like your mom i.e I have to keep this house. There's so much that goes into it. 

Deanna Brown: [00:41:51] Yeah. So that would be the person that would keep it. Somebody that would sell would be someone who is ready for a clean slate. They want to be able to feel independent, not rely on someone else. To make those mortgage payments, they don't have to live in a state of worry that they can't afford to get the pool cleaned or the yard mowed or the roof fixed. And maybe they're looking for a more simple lifestyle too. 

Annie Allen: [00:42:20] Yeah. Maybe they just don't want to deal with all those things. Maybe it's not a financial issue. Maybe they just don't want to be the one to have to fix the roof or deal with a plumbing issue. Maybe they want to have a landlord to call and say, "Hey. Come fix this" (Ha-Ha). 

Deanna Brown: [00:42:33] Exactly. 

Annie Allen: [00:42:33] Oh, and you know what else a lot of people do not know? If you are using a homeowner's insurance policy as a married person for a house, and then a divorce happens and you use even the same insurance company on the same house. Guess what? You're going to pay more for your homeowner's insurance policy for the exact same house. 

Deanna Brown: [00:42:57] Whaaat! 

Annie Allen: [00:42:58] Why is that?  Have you heard this? 

Deanna Brown: [00:43:00] No. Please enlighten me. 

Annie Allen: [00:43:02] As much as 6% more because you're a single person, I guess this is some kind of antiquated reasoning that goes into the risk assessment for insurance. But they actually oftentimes have a higher policy rate for a single woman than a married couple. I think I can't prove this, but I think it has to do with the fact that she's more unlikely to hire contractors and professionals to do work for her than to fix it herself. I don't know. That's what I've been told. I am not an insurance expert, but there's something to it because it is a statistic that I remember learning in our RCS-D training that women need to get insurance quotes on that homeowner's policy as part of their decision-making, in whether or not to keep it because it may be significantly higher. 

Deanna Brown: [00:43:59] Oh my gosh. 

Annie Allen: [00:44:00] Which is crazy. It is not fair, but it's happening.Anyway it comes down to the statistics. She's more likely to file a claim. 

Deanna Brown: [00:44:12] Right. Yeah. It makes sense. And then you have more contractors coming in and out of your house. You have to look at the liability standpoint too, if they trip and fall and they sue you; you have to look at that as well. So that makes sense. 

Annie Allen: [00:44:27] Yep. So, furthermore, I will just say that, should you sell it? That question to me is 99% of the time,  yes. Because the best way to sever joint debt and joint ownership is by selling. In fact, some people say it's the only way. I think a good solid refinance plan can be able to help. But here's the thing about it: whatever's written in a divorce decree might happen and it might not. There's not a lot of enforcement. There's not really a way to enforce a lot of it. A judge can tell somebody to refinance and then they don't do it. 

Deanna Brown: [00:45:08] Yeah. 

Annie Allen: [00:45:09] And so what are you going to do then? So you are still in that joint debt and joint ownership. So if you really truly want to sever all connections and you should, it's the wisest thing to do. You will sell the house. 

Deanna Brown: [00:45:23] Yes, absolutely. 

Annie Allen: [00:45:24] So who might be a good candidate for refinance if they're just not willing to refund it or sell?

Deanna Brown: [00:45:31] I think it would be someone who is not relying on alimony or child support for cashflow. They are career oriented. They make their own money. They want to stay in the home. Perhaps they have kids at a school and they feel like their kids would be better staying in the home from an emotional standpoint and they can afford the payments. They have the emergency fund and have the money to do the upkeep for it.

Annie Allen: [00:46:03] And if you're really, truly willing to do it, and here's a little tip If you're the party that's moving out. And you want to make sure that a refinance is more likely to actually happen when ordered to do so. Put a time limit on it in writing in the divorce decree that the person that's keeping the house has to refinance within 60 days, 90 days, whatever number you come up with. Put a limit on it. That doesn't force them to do it, but I think it puts a little bit more incentive into it. 

Deanna Brown: [00:46:39] Yeah. Accountability. Absolutely. 

Annie Allen: [00:46:40] Yeah. And who should buy a new house? Who should move out of that marital house and buy something on their own?

Deanna Brown: [00:46:47] I think it would be a couple of types of people. One would be someone who has a career. They're career oriented. They have their own income. They're able to qualify for a mortgage. They can afford the upkeep maintenance. And I've seen this a lot where they go from a marital home that might be, you know, a million dollar home, and then they buy their own home which is 250,000. But it's theirs and they're just happy to have their own and be able to be independent and pay for it themselves. Then you have another person who may not be career oriented. But they got really good assets in the divorce and they're able to buy something for cash.

Annie Allen: [00:47:28] Yeah, I agree. And I would have a third category to that. Someone who maybe wouldn't qualify in some ways on their own to buy, but they're really, really determined to make it happen. And they're willing to do the leg work to find grants or zero down payment assistance programs in order to make that possible for themselves. And that can be a lot of work and it's sometimes hard to find a real estate agent that will really dig in and help you figure it out. But it's possible. There's a lot of free money out there. If you're willing to do the work to find it. 

Deanna Brown: [00:48:01] Wow, you could probably do a podcast just on that topic alone.

Annie Allen: [00:48:05] Probably (chuckles) but because we're running out of time today, let's, let's talk just a little bit about cash flow after divorce and how that informs the real estate decision and then we'll kind of close out today. 

Deanna Brown: [00:48:17] Okay. Sure. So, again, the rule of thumb is 30%. I think that's high, honestly, because let's say your income flow is $3,000 a month. If you're spending a thousand dollars on housing, that only leaves you $2,000 a month, which kind of sounds like a lot, but when you break it up, It's really only like $500 a week. And to me that's not enough.  

Annie Allen: [00:48:41] Yeah, it would be hard for most people when you factor in insurance and everything. 

Deanna Brown: [00:48:48] Right. 

Annie Allen: [00:48:49] You don't even have to have an extravagant lifestyle to feel like that's not enough. 

Deanna Brown: [00:48:53] Yeah. I mean, if you break it down and you look at how much do you spend on food, how much do you spend on transportation? How much do you spend on your cell phone subscription? You write all these things down and then you look at it to know that this  is realistically what I spend, and then you have to add housing on top of it. And typically your housing is your biggest monthly expense. So sometimes you have to work backwards. It's not always okay to buy the house and try to fit everything in after making that payment. Maybe you want to look at it as, this is the lifestyle I want, what house fits my lifestyle versus the other way around. But cashflow really is important because it's going to give you the freedom and the flexibility to do the things that you want to do.

Annie Allen: [00:49:39] Yeah. Well, any closing thoughts on this decision? 

Deanna Brown: [00:49:44] You know, a lot of times we try to figure out this stuff on our own. And sometimes we don't know what we don't know. And I think I'm just going to reiterate that it takes a team. It takes a tribe of people, especially to get through something that's so emotional. Find yourself a really good coach.

Find yourself a CDFA a Certified Divorce Financial Analyst. Make sure that you've built your team and find an attorney that likes to work with others collaboratively and is a good communicator. But you don't have to figure all this stuff out on your own.  That's why we're all out there to help.

Annie Allen: [00:50:24] Yes, absolutely. Great point. Well, thank you very much for being here today for having this conversation that I know is going to help a lot of people. I want to give you just a moment to tell us a little bit about 'BagLady Divorce'. I love that name. It's such a great play on words. (Ha-Ha) 

Deanna Brown: [00:50:40] Thank you. So there is actually a 'Bag Lady' syndrome that I've found over the years and it is actually a thing.

So a lot of women go through divorce and they have this fear irrespective of how much their net worth is. I had a woman whose net worth was $10 million with her husband. She was going through a divorce. She was going to get 5 million of the 10. And she said, please, I don't want to be a bag lady. It's my biggest fear. 

Annie Allen: [00:51:10] oh I had not put that together. And now I understand. I have a client right now that is going through this. 

Deanna Brown: [00:51:20] Yeah. We grow up in certain environments and situations and sometimes we, it doesn't matter how much money we have but we have this fear. And so I created BagLady to help women overcome that fear and to empower them. It doesn't matter what their net worth is.  We all have a net worth. It might be small, it might be big, but to us, it's all we have and we want to be able to protect it and grow it. And so I have a Facebook presence. I also have a website which is baglady.deanna-brown.com where I have a blog with a plethora of information to help women get through divorce and make better informed decisions. And that's why I created it. 

Annie Allen: [00:52:09] Awesome. So on Facebook, is it just your name or is it BagLady Divorce or how would we find out?

Deanna Brown: [00:52:13] It's BagLady Divorce. 

Annie Allen: [00:52:15] Okay. Very good. Well, thank you again for being here listeners. I hope this has helped you to think differently about your real estate decision or at least given you some more information for making that decision. Probably it created some even more questions than you had before, and that's okay. You can reach out to get those questions answered with me and I can get you personally introduced to Dana so that you can work with her as well in forming that decision.

And I would love to talk with you about that or in any way to help you through your divorce. You can email me at annie@startngoverstronger.com and you can also check out the website, startingoverstronger.com for more information about private coaching, as well as real estate consulting and more. So book a discovery, call there if you'd like to explore how you can get your needs met before, during and after divorce. And remember that you don't have to go through divorce alone. Until we meet again, remember there's help as you divorce and hope as you are starting over stronger.