Handling the Proceeds of a Home Sold in Divorce

Getting a divorce is never easy, and one of the main things that complicates the process is having to divide marital assets when you’re in an highly charged emotional state. Some spouses act from a desire for retaliation. Others are motivated by a need for safety and security.

The problem is, these decisions effect the long-term financial security of everyone involved — you, yourself, and your children. You need to remove emotion from the equation and think with a level head about what is going to be in the best interest of everyone moving forward.

Nowhere is that more true than when dealing with the proceeds of a home sale. If you’ve been able to keep your animosity and bitterness aside long enough to work with a real estate agent throughout the home sale process, this is the last hurdle. Once the title company cuts your check, you’ll be ready to more on.

The Pay-off

For most couples, the family home is their biggest asset. At the same time, though, you don’t really own it; the house is collateral on the mortgage loan you took out when you bought the property. When you go to sell your home during a divorce, your only profit will be the equity that has accrued since the time of purchase. Everything else goes toward paying off the mortgage loan.

Typically, you pay off a loan the same day the buyer closes on the property. To know how much you owe, you’ll need to order a current pay off statement from the bank.

Meanwhile, the lender or real estate broker hires a title company to officiate between the buyer and seller and sets the closing date.

At closing, an agent from the title company receives money from the buyer, uses it to pay off your mortgage, removes the lien on the property’s title, and transfers the title to the new owner.

After you and the buyer sign closing documents, the agent sends the pay off amount directly to your mortgage company by wire transfer. You will receive any extra money either immediately or a few days later, depending on the laws in your state.

Divorcing couples need to decide who will attend the closing and where to deposit the proceeds from the sale. They can handle these details themselves or have their attorneys work out a solution that is acceptable to both parties.

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Dealing with the Proceeds

What you do with the profit from the home sale depends on a number of factors, including how large a sum of money it is, what each spouse is earning, and how much child support and alimony the custodial spouse will receive. If you have children, the goal should be maintaining a comparable standard of living for them in each post-divorce domicile. That could mean voluntarily surrendering a larger percentage of the proceeds to the spouse with less earning power in order for that spouse to buy a new home or qualify for the lease on an apartment without going into an unsustainable amount of debt early on.

Another consideration when dividing this asset is whether one spouse owed the home before the marriage took place. Even if the law says the property should be split 50/50, it might be more fair to grant a larger percentage to the original homeowner.

Some Final Thoughts

A real estate agent who specializes in handling home sales for divorcing couples is an invaluable resource. But after the home sale takes place, you may need to draw on other expert help when determining what to do with the proceeds. Consulting with a certified divorce financial analyst (CDFA) can help you and your spouse with asset division, tax complications, and other financial issues that affect divorcing couples.

At the end of the day, though, how much of the proceeds you get to keep is inversely proportional to the amount of money you spend hiring third-party experts to make your decisions for you. Couples who can agree to work together and research their options carefully before acting will be much better off than those who let anger and a desire to win at all costs overtake their judgment.

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