Giving up Home Equity in Divorce

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Subject Author Date Giving up Home Equity in Divorce nish 10-31-2009  Re: Giving up Home Equity in Divorce Alan 10-31-2009  Re: Giving up Home Equity in Divorce nish 11-14-2009  Re: Giving up Home Equity in Divorce Bill Brown 10-31-2009  Re: Giving up Home Equity in Divorce removeps-groups@yahoo.com 10-31-2009  Re: Giving up Home Equity in Divorce Dick Adams 11-17-2009  Re: Giving up Home Equity in Divorce Stuart A. Bronstein 11-17-2009  Re: Giving up Home Equity in Divorce Dick Adams 11-18-2009
Posted by nish on October 31, 2009, 9:42 am Please log in for more thread options The husband in a divorce makes the claim that he doesn't want to give up more than 50% of home equity in a divorce because it will prevent him from answering that he "owns" his home on credit applications, and he thinks this will hurt his ability to get credit (possibly to buy another home in the future). He proposes to split equity in the home 50/50 but he will cover the monthly mortgage expense. Does anyone see this from his point of view and can you elaborate? Isn't the ability to get credit more dependent on the amount of the mortgage for the part he owns, together with any alimony he owes, relative to his income? Why would a bank even care if he had any equity at all? And if he owned 50% would that be sufficient to answer that he "owned" the home? Technically even if he owns 50% of the equity, if he doesn't live there he cannot answer that he "owns" the home anyway...? Assuming that there were no significant upside to be realized on the home equity in the future, from a tax standpoint alone wouldn't it be better to pay the wife 100% of the mortgage as alimony, taking the tax deduction, and not taking the home mortgage interest deduction? If you own 50% of the equity, and you take the home mortgage interest deduction for half the mortgage, you lose the same cash flow but only get back part of the payment as a deduction? The husband in this case doesn't seem to understand that by paying the mortgage directly on the wife's share of the mortgage that he doesn't get any deduction on the home mortgage interest for the part he doesn't own. He'll end up losing cash flow, getting no deductions at all, on that part? When people get angry at each other, it's hard to get them to think about how to do things efficiently. nish -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Alan on October 31, 2009, 11:12 am Please log in for more thread options nish wrote: > The husband in a divorce makes the claim that he doesn't want to give up > more than 50% of home equity in a divorce because it will prevent him from > answering that he "owns" his home on credit applications, and he thinks this > will hurt his ability to get credit (possibly to buy another home in the > future). He proposes to split equity in the home 50/50 but he will cover > the monthly mortgage expense. Does anyone see this from his point of view > and can you elaborate? > > Isn't the ability to get credit more dependent on the amount of the mortgage > for the part he owns, together with any alimony he owes, relative to his > income? Why would a bank even care if he had any equity at all? And if > he owned 50% would that be sufficient to answer that he "owned" the home? > Technically even if he owns 50% of the equity, if he doesn't live there he > cannot answer that he "owns" the home anyway...? > > Assuming that there were no significant upside to be realized on the home > equity in the future, from a tax standpoint alone wouldn't it be better to > pay the wife 100% of the mortgage as alimony, taking the tax deduction, and > not taking the home mortgage interest deduction? If you own 50% of the > equity, and you take the home mortgage interest deduction for half the > mortgage, you lose the same cash flow but only get back part of the payment > as a deduction? > > The husband in this case doesn't seem to understand that by paying the > mortgage directly on the wife's share of the mortgage that he doesn't get > any deduction on the home mortgage interest for the part he doesn't own. > He'll end up losing cash flow, getting no deductions at all, on that part? > > When people get angry at each other, it's hard to get them to think about > how to do things efficiently. > > nish > For information on how your credit score is calculated see: http://homebuying.about.com/cs/yourcreditrating/a/improve_score.htm I don't see how paying for two houses would improve his credit score and make it easier to buy a house. One of the elements of credit scores is the amount of debt, your debt payments and your income. If he is liable for the debt payments on the house and maintains an ownership interest and the house is not rented and he treats the house as a second home (he does not have to live there) and the home secures the debt, he would be entitled to deduct all the mortgage interest he pays. Ditto for the property taxes he pays. You can deduct qualified mortgage interest on your main home and a second home. He doesn't have to be a majority owner. Generally, he would be better off giving up the home, taking "equivalent" assets for what he gave up, and taking a deduction for alimony if so ordered by the divorce or separation agreement. There are some other issues that must also be addressed when one party in a divorce keeps the main home and surrenders other assets: Liquidity of assets retained by each party, and capital gain taxes on the assets being divided. This is where the real fight takes place as determining what's an equivalent asset is not black and white. It can get even more complex if there are retirement accounts that each spouse may have an interest in. The husband in this case is focusing on the wrong issue. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by nish on November 14, 2009, 4:16 am Please log in for more thread options > nish wrote: >> The husband in a divorce makes the claim that he doesn't want to give up >> more than 50% of home equity in a divorce because it will prevent him >> from answering that he "owns" his home on credit applications, and he >> thinks this will hurt his ability to get credit (possibly to buy another >> home in the future). He proposes to split equity in the home 50/50 but >> he will cover the monthly mortgage expense. Does anyone see this from >> his point of view and can you elaborate? >> >> Isn't the ability to get credit more dependent on the amount of the >> mortgage for the part he owns, together with any alimony he owes, >> relative to his income? Why would a bank even care if he had any equity >> at all? And if he owned 50% would that be sufficient to answer that he >> "owned" the home? Technically even if he owns 50% of the equity, if he >> doesn't live there he cannot answer that he "owns" the home anyway...? >> >> Assuming that there were no significant upside to be realized on the home >> equity in the future, from a tax standpoint alone wouldn't it be better >> to pay the wife 100% of the mortgage as alimony, taking the tax >> deduction, and not taking the home mortgage interest deduction? If you >> own 50% of the equity, and you take the home mortgage interest deduction >> for half the mortgage, you lose the same cash flow but only get back part >> of the payment as a deduction? >> >> The husband in this case doesn't seem to understand that by paying the >> mortgage directly on the wife's share of the mortgage that he doesn't get >> any deduction on the home mortgage interest for the part he doesn't own. >> He'll end up losing cash flow, getting no deductions at all, on that >> part? >> >> When people get angry at each other, it's hard to get them to think about >> how to do things efficiently. >> >> nish >> > For information on how your credit score is calculated see: > http://homebuying.about.com/cs/yourcreditrating/a/improve_score.htm > > I don't see how paying for two houses would improve his credit score and > make it easier to buy a house. One of the elements of credit scores is the > amount of debt, your debt payments and your income. > > If he is liable for the debt payments on the house and maintains an > ownership interest and the house is not rented and he treats the house as > a second home (he does not have to live there) and the home secures the > debt, he would be entitled to deduct all the mortgage interest he pays. > Ditto for the property taxes he pays. You can deduct qualified mortgage > interest on your main home and a second home. He doesn't have to be a > majority owner. > > Generally, he would be better off giving up the home, taking "equivalent" > assets for what he gave up, and taking a deduction for alimony if so > ordered by the divorce or separation agreement. Can you give some specific example where the husband would be better off taking equivalent assets and taking a deduction for alimony? nish -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Bill Brown on October 31, 2009, 3:09 pm Please log in for more thread options > > The husband in this case doesn't seem to understand that by paying the > mortgage directly on the wife's share of the mortgage that he doesn't get > any deduction on the home mortgage interest for the part he doesn't own. > He'll end up losing cash flow, getting no deductions at all, on that part? To emphasize Alan's point, to deduct mortgage interest the loan must be secured by the taxpayer's primary residence or one other personal residence. If the home were his primary or second residence then _any ownership interest_ at all would allow him to deduct the interest he pays. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by removeps-groups@yahoo.com on October 31, 2009, 11:39 pm Please log in for more thread options > The husband in a divorce makes the claim that he doesn't want to give up > more than 50% of home equity in a divorce because it will prevent him from > answering that he "owns" his home on credit applications, and he thinks this > will hurt his ability to get credit (possibly to buy another home in the > future). He proposes to split equity in the home 50/50 but he will cover > the monthly mortgage expense. Does anyone see this from his point of view > and can you elaborate? See table 5 in publication 504. He might have to deduct half of the mortgage interest on Schedule A, and half as alimony on form 1040 itself. The other spouse would report alimony received as income. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted Tax Efficient Gifting of Home Equity in Divorce August 30, 2009, 10:48 am investment cost - home equity v.s. margin July 25, 2007, 6:22 pm Re: investment cost - home equity v.s. margin July 31, 2007, 3:37 pm Re: investment cost - home equity v.s. margin August 1, 2007, 4:26 pm How to pro-rate home equity interest deduction February 23, 2009, 11:39 pm Can I buy a foreclosure and repair the house with a Home Equity Loan? 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