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Suddenly Single - Primary Residence Decisions

By Dana Ragiel, Integra Capital Advisors

In recent posts, I offered up thoughts and experiences with women clients who I have helped after they became divorced or widowed.  The focus is on helping them establish and maintain their financial well-being, build confidence and move forward.

The average age of widowhood is 59.4 years according to the U.S. Census Bureau1. Due to a woman’s longer life expectancy she is more vulnerable to one of the life’s greatest challenges: the death of a spouse.   A widow may expect to live another 30+ years on her own.  In the case of divorce, studies have shown that the economic costs of divorce more adversely affect the woman’s standard of living than the ex-husband. 

Along the theme of “less is more” it’s never too late to evaluate your current living situation. More specifically, how much space do I need?  Should I rent or own?  Most importantly, after you’re widowed or divorced can you afford to stay in your current residence?   

Deciding on where to live can be a daunting decision.  Often, there is an emotional attachment to the home.  What are the needs of the children still living at home?   Do the kids want to stay in the neighborhood and the same school system?  Options include staying, purchasing a new home, or renting.

I worked with a widow, we’ll call “April”, who had a 6000 square foot home on Chicago’s North Shore.   It became apparent after her husband died that she needed to reduce her overall monthly expenses and annual maintenance costs.  Although she viewed her house as her greatest tangible asset it was the biggest drain on her cash flow.   The best recommendation was to sell the asset which would immediately reduce the large maintenance costs (property tax, HOA fees, utilities, insurance, landscaping and pool maintenance) of holding the property and free up the value of the residence to produce income through an appropriate investment plan.  In April’s case, she wasn’t aware that her late husband had mortgaged the home and taken out a home equity line of credit, which would need to be paid off from the sales proceed.  

April took my advice.    Within six months of her widowhood, she purchased a 1900 square foot condominium in Chicago and sold the large house that had become an albatross for her financially.  In April’s case, there was not any life insurance to help in the transition.  If you receive a life insurance payout it may make sense to take the proceeds and invest them while you are making a decision on the home.

Divorce may affect a woman’s finances more than if she was widowed.  While marital assets are normally split, often the wife was likely dependent on the husband as the bread-winner.  This brings into question whether you will work following the divorce and if the combination of salary and income produced from your share of assets will be sufficient to maintain the current residence. 

Maintaining the marital home may require real estate debt service.  Will your spousal support or alimony cover the mortgage?  Was the mortgage payment factored into child support?   These are questions you need to ask your attorney during the divorce proceedings.  Other possibilities include one spouse taking the home and the other taking a larger proportion of retirement investment assets.  This may seem equitable at the time, but if you take the home you might end up like April and have unmanageable costs of carrying and maintaining the property.  Depending on the situation, the easiest solution is often to sell the marital home and split the proceeds after any mortgages are paid off.

Often, renting for at least an initial period makes sense following a divorce or becoming widowed.   These are stressful situations and making important and significant decisions that bear financial obligations are best done after some time to think through what your intentions are for your life following these critical financial events.  What’s wrong with renting for a year while you decide where you will want to live and think through how much space you will need for your new circumstances? We think taking time on these decisions is the right thing to do.

We see these situations often as we advise clients in our offices located in the Naples and Sarasota / Bradenton areas of Florida.  Each situation is different and should be analyzed from a clean slate perspective.  For widows, it is usually best not to make these big decisions right away.  Time to grieve is important and part of the healing process to then decide what is important to you to move on.  Since the divorce process takes time, working with your financial advisor allows for quicker decisions once the divorce is finalized.

If you have questions, please call us at 941-778-1900 or click here  to complete our contact form.

1. https://www.census.gov/prod/2011pubs/p70-125.pdf?mod=article_inline

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