Split decision

WHEN Charlene Penna and her husband prepared to divorce in 2004, she was determined to keep their Hermosa Beach home. So she bought him out. The day the title transferred to her alone, friends sent her flowers in celebration.

“I kept the house so my child would feel stable during this very unstable time in our life,” she said. “The house reflects a large part of me. I see myself here in the long run.”

The family home and the retirement funds are typically the largest assets to be divided in a divorce. And deciding who gets what is nearly always emotionally charged. The decision can carry long-term financial and tax consequences for each spouse. No one solution is right for everyone.

Traditionally, couples have followed a gender-based script, according to financial experts who advise divorcing individuals.

“The women usually want to keep the house,” said Benjamin Putman, a CPA and certified divorce planner in Irvine. “The men want to keep the pension plan.”

In instances when the man retains the house, it may be because he has a strong emotional attachment to it, said Ginita Wall, a San Diego certified public accountant who specializes in divorce. Perhaps the house helps define his status in life, she said, or he worked hard to design, build or beautify it.

Paying a mortgage with one salary instead of two can be a big financial challenge -- one that’s been compounded by the rapid escalation of home prices in Southern California in recent years. Plus, the spouse keeping the home must often take on additional mortgage debt to buy out the other by refinancing or relinquish assets, such as savings, stocks or other real estate, in exchange.

Penna’s home, which she and her husband purchased for $325,000 in 1995, was appraised at $1.4 million at the time of the divorce. When they divided the assets, Penna retained the 900-square-foot beach bungalow with guesthouse by refinancing the mortgage and paying her husband $400,000. Her monthly payment more than doubled, from $2,100 to $5,400.

To make the higher payments, Penna remodeled the guest cottage, then raised the amount she charges for its rental from $1,100 to $2,200 a month. She also found a higher-paying job as the chief financial officer for an entertainment consumer-products company.

“I struggle each month to keep this mortgage going,” Penna said. However, she added, “I feel very happy about it. I wanted to prove something to myself.”

When it comes to the family home, Putman said there are three basic choices: the divorcing spouses sell the residence and split the proceeds; one spouse keeps the house, usually by buying out the other; or one spouse remains in the home for a set period before selling, to allow the youngest child to graduate from high school, and then splits the proceeds with the ex.

Couples often do not agree on what to do with the house, said Dawn Strachan, a certified financial planner and a certified divorce planner with the Financial Planning Group in Irvine.

“Usually the men are saying, ‘You can’t afford the house. We should sell the house,’ ” Strachan said. But “for her, it’s a foundation.”

There are typically no easy choices. Selling the home and renting could be the only option financially in the short term, but the divorcing couple gives up potential future increases in home equity. Choosing to buy down to a smaller home or condo could mean little mortgage-payment relief because of recent price increases, and possibly a higher property-tax bill than before.

Carol Knowlton, a financial advisor and divorce planner with Knowlton Financial Group in Anaheim Hills, tells clients to keep the house, if it’s not likely to become a risky financial burden. “Otherwise,” she said, “you’ll probably never get another home in Southern California.”

To help her clients decide, Strachan does financial projections for several options. Most of the time, she said, the projections -- based on current and future income and expenses -- show that the person who keeps the house will run out of money in five years.

Although she encourages those who can to keep their homes, Knowlton advises against relying on alimony and child support as the means to do it. “I’ve seen too many cases where that stops,” she said.

Strachan agrees. “Sometimes women will think, ‘OK, my spousal support of $2,000 a month pays the mortgage.’ What they don’t think about,” she said, “is six years from now when the child support or alimony dries up.” The spouse keeping the home needs to consider the big picture with a realistic budget that includes not only the mortgage, but also taxes, clothing, children’s activities and inflation, she said.

“I come across some women years after divorce who are still trying to recover” financially, Strachan said. “It all goes back to the first choices they made.”

Some who elect to keep the home at the expense of their pensions and retirement income might have to consider a reverse mortgage during their senior years to tap the equity for living expenses.

When Julie Surowski divorced in 1993, holding onto the family’s Hermosa Beach house seemed the only good option for her. The couple had bought the home in 1975 for just $35,000, and after remodeling it and refinancing, their mortgage balance was $150,000. Renting or buying another home in the area would have been more expensive. So her husband kept his oil industry stock, and Surowski bought him out and held on to the home, then appraised at $370,000.

“I was really scraping by the first few years,” she recalled. “It was hard to make ends meet.”

But she’s glad that she did; she loved the area, was close to family, and her daughters got to remain near their friends.

Homes in her community now sell for more than $1 million, but her property tax is only $1,800 annually. Surowski, 55, a schoolteacher, expects to pay off her $1,800-a-month mortgage before she retires.

Looking back, she said she was lucky that in the divorce there were enough assets to split. “I feel that in the long run, I made the better investment.”

Ann Perry can be reached at [email protected].