Selling Your House during a Divorce
Divorce is, a fact of life — in today’s society, nearly as many couples will split up as stay married.
According to the Center for Disease Control and Prevention, there is one divorce every 13 seconds in America. That means in the approximate time it takes to read this the rest of this paragraph, there will be almost 4 more divorces occuring somewhere in the United States. And when that happens, they will need to divide their marital property . Unfortunately, these negotiations take place during a time when people feel angry, frightened, and betrayed. It’s easy to become fixated on the property as a symbol and refuse to let go, as though by hanging on you can deny the reality of your changing circumstances.
Nowhere is that truer than with a couple’s largest asset, the marital home. One spouse might refuse to vacate because the other spouse cheated, and they want to retaliate. Other couples worry about losing status or uprooting their children.
But at the end of the day, divorcing couples are best served when they put their emotions aside and make a decision based on what makes the best financial sense for each of them moving forward. In many cases, selling the family home makes the most financial sense.
Understanding Your Options
Keep the home
If one spouse decides to keep the marital home, they typically need to buy the other out in order to split the asset equally. Doing a cash out refinance is one way to access enough money to pay off the spouse who has agreed to surrender their stake in the home. Afterward, the divorcing couple must transfer the deed into the name of the spouse who is keeping the property.
Defer the sale
Sometimes, especially in amicable divorces, couples will agree to let the kids finish out their childhoods in the marital home. The spouse who remains must be able to afford the mortgage payments and, in some cases, deferment could lead to a contentious battle over this asset later on.
Sell and split the profit
For couples where there is a big difference in earning potential, this is often the most practical option. Selling the home gives each divorcing spouse money for a down payment on a new, more affordable home or gives them a small nest egg to get established in their new life.
Why Selling Is the Better Option
Although the temptation to keep such a large asset may be strong, there are several reasons why it doesn’t make good financial sense.
Your household income is bound to be lower after the divorce, and without the security of a dual income, you could face bankruptcy or foreclosure in the event that an unforeseen emergency happens.
You may need to tap into retirement funds to pay for large, unanticipated expenses on top of the mortgage — even if you are able to avoid tapping into retirement funds to buy out your spouse
The capital gains exclusion is only $250,000 when a single person owns a house, as opposed to $500,000 for a married couple. If your home appreciates, you could end up paying thousands in hidden taxes if you keep the home and sell later as a single person.
Preparing to Sell
Before your real estate agent puts the house on the market, you should divide the property inside the home. Not only will that make moving day easier; it will give you an opportunity to declutter before staging the home for the market. Ideally, you will be able to work together to make these decisions. If not, a mediator can help.
Couples also need to decide the following:
Who will remain in the home
until the divorce is final?
Will one person be responsible for making mortgage payments, or will the payments continue to come from a shared account?
Who will be responsible for any
repairs needed on the house
before it goes on the market?
What is the timeline to put
the home on the market?
What should the
asking price be?
How will you
divide the profits?
To cut down on friction, you may want to put one person in charge of meeting with the Realtor in the preliminary stages. That person can make a video of the real estate agent’s walk-through to share with the other spouse later. The couple can meet with a mediator to discuss the Realtor’s advice and recommendations to determine the sales price and other details.
Moreover, the real estate agent can serve a vital role as go-between, cutting down on the amount of time you need to spend with your spouse and diffusing tension.
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Accepting an Offer
Because there are so many variables, you may want to defer judgment to your real estate agent about decreasing the asking price, accepting a lower offer, and negotiating on improvements that the buyers wants after inspection. A trusted mediator or your attorney can also help you to make these decisions.
Handling the Pay Off
belongs to him alone.
When you can agree
Whatever you and your spouse personally decide will override the law in your state, allowing you to determine how best to handle the profits once the mortgage loan is fully paid off. You can split the proceeds equally, allocate a greater percentage to the spouse with less earning power, or use the money to establish a child’s college education fund.
When you can’t agree
It’s only when you can’t arrive at a mutual decision that the laws of the state become a factor. For instance, if your spouse purchased the home prior to the marriage, you might only be allowed to claim one half of the equity accrued since the date of the marriage. If you are not on the deed but have an established stake in the property, you may need the court to intervene to get your fair share.
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