Home Selling Options in a Divorce

After months of painful revelations and agonizing conversations, you and your spouse have made the decision to divorce. Now you are faced with carrying out a series of steps needed to dissolve the marriage. This includes making a custody schedule and deciding how to split the marital assets and debts.

Perhaps the most emotionally fraught decision is whether to sell the marital home or not. That’s because your house is more than just a piece of property. It’s the place where you raised children and shared memories. For most couples, it also just so happens to be their single biggest asset. You may have planned on using that home equity to enjoy your retirement years.

These dreams die hard. In fact, many spouses want to hold on to the marital home for emotional reasons, not considering whether it makes good financial sense. The following article allows you to decide whether keeping the home or selling it is the best option for you.

Option #1: The Buy Out

In this scenario, one of you agrees to keep the marital home. To divide the marital assets evenly, this option requires that you buy out the other spouse by paying them their share of the equity accrued in the home during marriage.

If you can afford to continue making the mortgage payments on a one income, this is a good option because:

 

Your children won’t have to change their school or lose touch with neighborhood friends.

You won’t have to pay moving costs or the fees associating with selling a house.

 

You won’t have the stress of finding a new property.

You can finance a buy out in several ways. If you and your spouse have excellent credit, the most painless way is to do a cash-out refinance on your mortgage loan in the amount of half the accrued equity. (When you have a mortgage loan, the accrued equity is the asset, not the home itself.) This amount then goes to the spouse who has chosen to vacate.

Depending on when you secured the loan, you may end up paying a higher rate of interest on the refinance, and have a higher loan payment.

If you don’t have good credit, you can ask family members to consider gifting you the buy-out amount, or you can take the money from your personal savings or retirement fund. These options deprive you of cash for emergencies and could leave you short on your retirement goals.

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Option #2: Deferred Sale of the Property

Couples who split amicably, or who can at least continue to keep their children’s best interest in mind, may find that deferring the sale of the marital home until the kids are out of the nest has certain advantages, especially if you live in one of the nation’s prime real estate markets, where property values prices continue to outpace the national average.

In this scenario, you might think of the house like a bond that will mature once your youngest child graduates from high school. But like any investment, there is risk involved. You could end up needing to sell during an economic downturn, or another unforeseeable event could negatively impact the price of real estate in your neighborhood.



The biggest problem with a deferred sale, however, is it depends on your having a solid relationship with your ex. You’ll need to draft a clear agreement spelling out who pays the mortgage, big-ticket maintenance expenses, and property taxes in the intervening years as well as how you are going to handle the costs of putting the house on the market. There’s always the chance that your spouse will challenge that agreement in court or fail to keep up their end of the bargain.

Option #3: Sell Up and Split the Proceeds

The third option is to sell the property before you finalize the divorce and split the profit. Although putting a house on the market is never stress-free, seeing this as one for step you need to take before becoming officially divorced may allow you to detach emotionally from the house. Working with a real estate agent who is skilled at handling divorce home sales can help. Such agents are accustomed to the added layer of anxiety divorcing couples experience.

When you sell the marital home before divorcing, you need to figure out how you are going to split the proceeds. While the divorce laws of your state can provide some guidelines, ultimately it is up to you to decide. You might opt to establish a college fund for your children in lieu of taking the money yourselves, or you might decide that the spouse with less earning power should get a bigger share.

However you decide to split the profit from your home sale, selling up before your divorce allows you to leave the marriage with a clean slate so that you can go on to build new lives.

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