Should you keep the house in a divorce?

Consider tax implications

Taxes are the last part of the affordability picture. "A lot of expenses are beyond your control, and taxes are one of those expenses," says Gschwend. "Expect that your property taxes will go up, because they usually do."

If property values rise, taxes increase. Many state and county laws require periodic reassessments, which can significantly increase your tax bill, especially if you've improved the house or prices have gone up in your area since the last assessment.

The positive side of the tax picture includes the mortgage interest deduction, the head of household deduction and the capital-gains tax exclusion. If you get the house in a settlement, you can deduct your mortgage interest and taxes on your income tax return. In addition, if you have primary custody of the children, you can file as head-of-household, which will give you a bigger deduction than filing single.

If you and your spouse sell the house upon divorce, you each can exclude up to $250,000 of any capital gain. In a joint ownership situation, both parties can also benefit from the exclusion when the house is finally sold.

Trading assets

If you really want to keep the house, you have to give up something in exchange. "In many cases the house is the major marital asset, and there has to be a trade-off of assets, so the husband usually gets other assets such as the pension or 401k if the wife wants to keep the house," says Gschwend.

It's important to get an impartial assessment of the worth of the house so attorneys and divorce financial planners can construct a fair asset swap agreement. Coullahan refers clients to a real estate agent who has access to a database of comparable properties in the home's area. If the house is unique or there is a dispute about the value, the couple can hire an appraiser to provide a fair valuation.

Wilson notes that real estate in general is not a liquid asset, so it's important to weigh the desire to hold onto the home against the need for steady sources of income.

It's a good idea to hold on to some investments or a share in your spouse's 401k plan or pension, the planners say. Stock may appreciate faster than real estate, and the lower-earning partner in a marriage -- usually the wife -- doesn't have the ability to replenish retirement and investment assets in the same way as the higher-earning partner, Wilson says.

Consider downsizing

In some cases, it makes sense to downsize immediately to a smaller house, especially if the expenses involved in keeping the house are more than you can afford. Some people associate the house with their failed marriage and are anxious to start fresh somewhere else.

On the other hand, in some areas of the country, rents and housing prices are so high that even a smaller house or condo may be out of your price range. Also, it may not be possible to find an affordable house in the same or another high-quality school district.

The long term

Before making a decision on what to do with the house, both parties in a divorce should consider the long-term consequences. Make sure you're not giving up your financial security in exchange for a house you won't be able to afford in the long run.

Many divorce financial planners and certified divorce financial analysts use specialized software to calculate the long-term effect of various child support, alimony and property settlement scenarios. Involving a financial planning expert in your divorce negotiations can help ensure that both parties are fairly treated.

"I find that when both partners feel they are fairly treated, they will have a decent relationship in the future," says Coullahan. "These issues carry over into parenting, so if the wife made bad decisions in the divorce and didn't get enough financially, it affects the kids too."

Planners also recommend that couples seek out free online calculators dealing with property division, sale of the home and income and taxes to gauge their agreements.

This article was reported by Amy Crane for Bankrate.com.

Updated May 26, 2009

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