Separating, some advice needed.

Hi. Newbie at this, but thought Id' try to get some advice anyway. Im in the middle of a separation and my wife is moving out and wants half house equity plus some more for contents (Ill be keeping most of our stuff), and of course half my very meager super. Anyway, I've agreed to her figure, but now I'm trying to decide if I should hang onto the house, which means I'll need to get some extra income from somewhere, or just sell up with her and we split profit. Our outstanding loan is about 260k, and the house is estimated to be worth about 530k (may even get more (in outer E-SE Melbourne suburb)). This means once I pay her out I'll be looking at over a 400k mortgage by myself, which I cannot afford without, as I say, extra income. We have two small kids, so I think keeping the house would also benefit their transition. Don't know if the housing prices will keep going up as they have in my area lately or if they'll soon top out, in which case I may be better to take the $'s and run!

I know if I decide to keep the house it's going to be a financial struggle for me (income is 95k) with things like child support etc. on top of the approx. $600/wk mortgage. But I know in 12-18 months my costs will go down (child support will decrease due to wife's (ex wifes ) increased income (that'll happen due to contract she's on), and I'll no longer be sending our youngest to daycare), so I know if I can stick it out until then things will get easier. Unfortunately we have no savings, been week-to-week for a while now, so cannot afford to run in the red for any time. I've been looking at renting out a front room in our house, and I have a potentially interested candidate. Does anyone know if any insurance companies will cover a single-room renter/boarder?! My current home insurance company won't touch it – infact they claim a renter will null and void any claim I make once they move in! I'm also affraid this renter will hurt themselves and sue me etc. Even if it's just cash-in-hand and verbal agreement I'm not sure what the legalities/possibilities are there.

I know there's the option of moving out and renting myself while renting my current house (as long as I move back in each 6 yrs to avoid cgt). I could think about that in the future but at the moment I'm struggling just to come to terms with the separation, so putting that on my plate right now seems overwhelming. Anyway, not sure what's my best plan at the moment… would rather keep our house I guess, but the renter/boarding thing worries me due to above. Thanks for any advice.!

BH