Unexpected cash - pay off debts or buy home (to reduce child support expense)?

Question

There are quite a few people who seem to handle personal budgeting questions, so I'll ask here, as my situation recently changed.

I am a recently divorced father of 3, and was ordered to pay child support. With nothing left, I moved back in with family and continued working. Slowly, thanks to rent-free living conditions, I paid off quite a bit of debts that the divorce left in my hands. As of today, all that remains are a few major loans, including a car loan at 11% for $6k, a few low-interest student loans at $7.5k (3%), and some collections that are being paid off over time at $9k. I make $100k, but 1/3 of that goes to taxes, 1/3 of that goes to child support, and I keep the remainder. All told, of the net $2700 I get per month, I can use $900 a month for personal use, which I've spent mostly on combating the inevitable depression the entire situation has caused (and supporting my children when they visit on weekends). I've also been working this to build up my credit score from the low 400s to the 660 I have today. I've managed to put $12k into a 401k to start a home buying process while the debt is paying itself off.

I recently will be receiving enough cash to pay off all of that debt, plus the taxes for that funds, and leave me with a bit left over. Personally, I would be happy with this, but I want to see my children. I discussed this with a friend, who suggested I buy a house and go from twice-a-month visitation to joint custody, since now there would be a place my 3 children could live. As a bonus, I could also fight alimony and other charges, which, if successful, would transfer an additional $700/month back on my side.

Questions:

1. Should I seek a lawyer, CPA, etc to go over this situation?
2. I do plan to retire in about 35 years, so would aiming for a home now be a wise investment? Homes run for about $250k in my expensive area of the country, but I would be comfortable just anywhere that my kids could live.
3. Should I instead consider renting for a year and paying off the debt? I plan to live here for about 15 years (until my oldest can go to college).

Answer 1

Directly answering your questions:

1. Yes definitely. Budget money from your windfall for this however, no more debt
2. No, you are not in a financial position to buy a house
3. Yes, rent until your finances are stabilized and you have a strong down payment.

More broadly, you should consider the Dave Ramsey Baby Steps plan. Your situation is complex but some of the steps are:

• Save a 1000 dollar emergency fund assuming your are in USA. Sounds
  like you have this. Step 1
• Pay off all of your debts. Step 2
• Save an emergency fund of 3 to 6 months expenses. It doesn't sound like you are here yet. Step 3
• Save a down payment for your house. Rent until you are here. This is separate from a 401k and should just be a saving account. Step 3b
• Starting saving 15% for retirement, don't save for retirement until
  you get here. Step 4.

For your specifics, renting a place would be my first priority with any extra income. Getting back on your feet with your own place will help you to move forward. A rental house is fine from a visitation perspective, no need to buy a house.

Once your living situation is stabilized then I'd start the Baby Step's plan.

You mentioned that you are are making 100k and 30% of it is going to taxes. This is way too much, something is awry. Check you pay stub carefully and reduce anything that you can. Some ideas:

1. Stop investing in your 401k until Step 4
2. Make sure you are taking enough deductions. Depending on the custody agreement, you may be entitled to claim the children as dependents on your taxes. If you are making much more than your ex, you claiming the kids will benefit both of you.
3. Your ex should be paying taxes on the alimony which you can then deduct 100%.
4. Make sure you are not overpaying for family health insurance. If the kids have insurance through your ex then just get a plan to cover yourself.

Check with your CPA and/or lawyer on all this, the laws are complex.

Put yourself on a strict budget and your strong income will straighten up your financial picture quickly. Dave Ramsey's Total Money Makeover book is a great place to start for motivation and a clear plan of action.

Answer 2

1) Yes. A lawyer can give you a much better idea of what you can and can not get (still do take their words with a grain of salt since most lawyers are overly optimistic about their own abilities to win cases).
2) Yes.... probably. You'll have to do some math on whether or not renting is cheaper than buying in the area you live in. As a general case, if you don't plan on moving in the next 30 years, buying is better than renting. However, the numbers differ in each area and could change in the future. Also if you lose your job and can't afford mortgage payments you're a whole lot worse off than if you had been renting (unless it's way down the road and you might be able to refinance for a much lower monthly payment).
3) Again, you need to do the math here. How much cheaper is renting than buying ? How much money would you save ? If there really is a significant difference, then yes.

Edit: Also your headline says "to reduce child support payments".... No. That shouldn't really factor into your decision too much. The money you don't give to your ex-wife is not money you just get to keep. The children will likely cost you a similar amount.