Should You Keep the House? How I Help Clients Decide

This is the question I hear more than almost any other. Should I keep the house?

Sometimes people already know the answer and they’re looking for permission. Sometimes they genuinely don’t know. And sometimes they think they know, but the numbers tell a different story.

Here’s how I actually think through it with clients in Spokane.

The question before the question

Before we get to keep or sell, there’s a more basic question: can you sustain this house on your income alone?

Total housing costs, the mortgage payment, property taxes, homeowner’s insurance, and a responsible maintenance reserve, should not exceed about 28-30% of your gross monthly income. That guideline exists for a reason.

Here’s a real example. A client came to me with a Spokane home and a $1,450 monthly mortgage payment. She also had:

Property taxes: $310/month
Homeowner’s insurance: $145/month
Maintenance reserve (1% of home value per year): $380/month
Total housing cost: $2,285/month

Her post-divorce income, including her salary and the alimony she was receiving, was about $4,800/month gross.

That puts her housing costs at 47.6% of gross income. Nearly half her money, before she paid for food, transportation, health insurance, kids’ activities, or anything else.

That’s not sustainable. Not because she was doing anything wrong. Because the numbers don’t work.

The buyout math

If you want to keep the house, you need to buy out your spouse’s share of the equity. That typically means refinancing into your own name.

Two questions come out of this.

One: can you qualify for the mortgage? The lender is going to look at your income, your credit, and your debt-to-income ratio. Alimony and child support count as income if they’ll be paid for at least three years and if that’s documented in the decree. Without those payments, or if they’re not guaranteed long enough, the income picture gets tighter. If you can’t qualify for the refinance alone, keeping the house isn’t a real option without a cosigner or some other structure.

Two: what does the buyout actually cost you? Your spouse’s share of the equity has to come from somewhere. Either you pay cash, refinance for a higher amount (which increases the monthly payment), or you trade other assets. If you’re giving up retirement accounts to buy out the house equity, that trade has long-term consequences that need to be modeled before you agree to it.

What equity is actually worth

Home equity looks like money. It isn’t liquid money.

You can’t pay your electric bill with home equity. You can’t use it for a car repair or your kid’s tuition. To convert equity into cash, you sell the house or take out a loan against it.

Meanwhile, the house costs money to maintain. Most financial planners use 1% of the home’s value per year as a maintenance reserve. For a $400,000 Spokane home, that’s $4,000 a year, or $333 a month, that should be set aside for the roof, the HVAC, the water heater, and everything else that will eventually need replacement.

If that reserve isn’t going into a savings account every month, the money still gets spent. It just arrives as an emergency instead of a planned expense.

Retirement accounts, on the other hand, grow while you sleep. A $200,000 retirement portfolio at 6% average annual return becomes about $358,000 in ten years without you adding anything. A $400,000 Spokane home at 3-4% historical appreciation becomes $537,000 to $592,000, but you’re spending $27,000 to $33,000 a year (mortgage, taxes, insurance, maintenance) to get there.

The equity numbers look similar over time. The cash flow reality is very different.

The capital gains issue

Here’s one that surprises almost everyone.

When married couples sell a primary residence, they can exclude up to $500,000 in capital gains from federal income tax. After divorce, each person is a single filer. The exclusion drops to $250,000.

Spokane has had strong real estate appreciation. If you bought your home several years ago at a significantly lower price, you may have gains that exceed the single-filer exclusion.

Say you bought at $280,000 and your home is now worth $560,000. That’s $280,000 in gains. Married, you’re well inside the $500,000 exclusion. If you take the house in the settlement and sell it four years later as a single person, you have $30,000 in taxable gains that would have been excluded if you’d sold during the divorce.

At a 15% capital gains rate, that’s $4,500 you could have avoided.

That example is on the modest side. I’ve run this calculation for Spokane clients where the extra exposure was $80,000 or $100,000. This is worth modeling before you decide to take the house.

The emotional math

I don’t dismiss the emotional reasons to keep the house. I’ve sat with people who built their lives in a home, whose kids grew up there, who have a relationship with the house that doesn’t show up in any spreadsheet.

That’s real. It belongs in the decision.

What I won’t do is pretend the emotional reasons override the financial math. I’ve seen clients keep the house for the right emotional reasons and spend the next five years unable to save, unable to travel, unable to do things that matter to them, because housing costs absorbed too much of their income.

If you can genuinely afford the house on your post-divorce income and the numbers support it, keeping it is a completely valid choice. If you can’t afford it and you keep it anyway, the house will make that choice for you eventually, usually at a worse time and with worse options.

The three questions I actually ask

When a client says they want to keep the house, here’s where I start.

First: what does the house cost per month, all in? Not just the mortgage. Taxes, insurance, maintenance reserve, and any HOA fees. Take that number as a percentage of your post-divorce income. If it’s above 35%, we have a real conversation.

Second: can you refinance into your own name? Get a pre-qualification letter before you commit to anything in the settlement. Knowing you can’t qualify is better to find out before the decree is signed than after.

Third: what are you trading away to get it? If you’re giving up retirement accounts to buy out the equity, I model both scenarios at 5 and 10 years out. Sometimes keeping the house is worth what you’re giving up. Sometimes the long-term numbers make a strong case for selling and splitting the proceeds.

There’s no universal right answer. But the decision should be based on what the numbers actually show, not on what feels right in the middle of a hard moment.

When keeping the house makes sense

It does sometimes. Here’s when I see it work:

Your housing costs stay comfortably under 30% of your income after the divorce
You have enough other liquid assets to maintain the maintenance reserve separately
The capital gains exposure is manageable or doesn’t apply
You can refinance into your own name without straining your debt-to-income ratio
The children’s stability in their school and neighborhood carries genuine weight, and the financials can support it

When all of those conditions are met, keeping the house is a reasonable choice. The financial case is solid enough to support the emotional one.

When they’re not all met, the house becomes an anchor rather than a home. And anchors are worth letting go.

What to do right now

If you’re in the middle of this decision and not sure which way the numbers point, get the full picture before you commit to either path.

A settlement review looks at the proposed agreement and runs the real numbers, including the housing cost analysis, capital gains exposure, and long-term projections, so you know what you’re agreeing to before you sign. If you’re earlier in the process, sitting down with me is a good way to think through what you actually have and what different settlement structures would mean for your life.

Either way, don’t decide about the house based on a gut feeling in a hard moment. Run the numbers first.

Frequently asked questions

How do I know if I can afford to keep the house in a divorce?

The standard guideline is that total housing costs (mortgage, taxes, insurance, maintenance reserve) shouldn’t exceed 28-30% of your gross income. If you’re above that on a single income, the house is going to squeeze every other part of your financial life. Get the real monthly number, including taxes, insurance, and a maintenance reserve of at least 1% of the home’s value per year, and compare it to your post-divorce income.

What is a buyout in a divorce and how does it work?

A buyout means one spouse pays the other for their share of the home’s equity and takes over the mortgage. The buying spouse typically refinances the home in their own name. The challenge is qualifying for that refinance on a single income. If you can’t qualify for the mortgage alone, you either need to sell the home or find a different settlement structure that compensates the departing spouse with other assets.

Does keeping the house in a divorce affect taxes?

Yes. When a married couple sells a home they’ve lived in as a primary residence, they can exclude up to $500,000 in capital gains from taxes. Once divorced, each individual can only exclude $250,000 as a single filer. If your home has significant appreciation, taking the house and selling it later as a single person could create a real tax bill. The capital gains exclusion calculation should be part of any settlement analysis involving the home.

Should I keep the house for the kids’ sake?

Stability matters, and that’s a real and valid reason. But the financial question still has to be answered separately. I’ve seen clients keep the house for the kids and manage it well. I’ve also seen clients keep the house for the kids and spend the next three years watching every financial decision get constrained because housing costs consumed too much income. The children’s stability and your financial sustainability are both real things. A plan that ignores either one isn’t complete.

What if I can’t refinance the home on my own?

This is more common than people expect. If you can’t qualify for the mortgage on a single income, you have a few options: sell the home and split the proceeds, arrange a deferred sale where both spouses remain on the mortgage until a specific trigger date, or structure the settlement so the departing spouse receives other assets of equivalent value in lieu of home equity. Each of these has financial implications that need to be modeled before you commit.

What is a deferred sale arrangement?

A deferred sale means both spouses agree that the home won’t be sold immediately, usually to give minor children time to finish school in the same district. One spouse typically stays in the home; the other is on the mortgage but not living there. When the trigger date arrives, the home is sold and proceeds are split as specified in the agreement. This arrangement creates ongoing legal and financial entanglement between ex-spouses, which is worth understanding before you commit to it.