Options For What Happens To The House In A Divorce
Divorce requires that the couple make agreements about joint assets such as the marital home. However, this doesn't necessarily mean you have to sell your house if you want to divorce.
In A Divorce, Who Gets The House?
Divorcing spouses will need to divide their assets as part of their divorce settlement. However, how your home or the proceeds from the sale are distributed depends on when and where you live.
The state's guidelines in which you live do not apply to cases that end up in court. Therefore, you and your spouse can negotiate a settlement without going to court. This will allow you to decide what is best for you both.
What Is Marital Property?
Marital property is generally anything that you or your spouse have acquired or earned during the marriage. For example, you can think of the money you earned at work, your cars, and the house you purchased together.
What Is Distinct Property?
Separate property is only for one spouse. Whether you live in an equitable distribution or community property state, your home may be considered marital property or separate property.
What Is A State Of Community Property?
A community property state means that almost everything acquired during the marriage is 50/50. This includes income, assets, and debts. However, there are some exceptions.
If your home was owned before you married, and your spouse was not added to it, you still retain separate ownership. However, your spouse may be entitled to half the appreciation of your house during your marriage. This can be complex, so make sure to consult an attorney.
Arizona, California, and Idaho are all community property states. Alaska is an opt-in state. This means that you can declare assets as community property before or during your marriage.
What Is An Equitable Distribution System?
Assets are distributed fairly in the 40 other states but not always equally. A judge can decide who gets what in an equitable distribution state based on income, financial contributions, and earning potential.
What Is A Prenuptial (Or Post-Nuptial?) Agreement?
Prenuptial and post-nuptial agreements (before and after the wedding) are legal documents that both spouses sign. They specify who will get what assets and who would be responsible for paying which debts in the event of divorce.
These agreements eliminate many of the questions marks and are valid regardless of whether you reside in a state of equitable distribution or community property. Couples who have significant assets before marriage are more likely to execute nuptial agreements.
Divorce: What Are Your Options For Housing?
There are many options when you are splitting up and owning a house together.
Option: Divide Large Assets
You may be able to agree to divide up large assets between you and your spouses, such as your primary residence, a vacation home, or a large stock portfolio. Each person will take ownership of assets that are roughly equal in value. For example, one person may keep the family home, while the other receives the boat and stock portfolio.
Why Choose This Route?
Divide large assets faster than a property sale.
Remember:
You'll still need to negotiate the fair value of all assets to reach an equitable agreement.
Option: Buy Out The Other Side
To acquire sole ownership, the spouse pays half the current market value to the spouse who is interested in keeping the home. The buyout amount may vary depending on income, financial contributions, and earning potential.
Why Choose This Route:
One spouse might decide to keep the family home to provide consistency for their children or be close to work or school. This is a great option, especially if the local real estate market doesn't favor you. If you sell, you will lose your investment.
This option requires that the buyer has cash access that is not subject to any divorce proceedings. However, it may be possible to combine a buyout with a home mortgage refinance. You should also ensure that you are able to afford your mortgage payments (if any) with a single income.
Option: You Can Co-Own Your Divorce Home
A divorced couple can agree to continue owning a house together. However, they will also need to decide on details such as how mortgage payments will be divided, when they will be paid each month, and who will receive the proceeds from the sale.
This is another way children can stay at home. It's also a practical option if one person can't afford the other.
Remember that late payments can affect both owners' credit scores, even if they are divorced. Therefore, both parties must agree on timely payment. The owner who will not be living in the house should be aware of capital gains tax exclusions. If you are selling a house and have owned it for five years but have not lived there as your primary residence for two years, you will be subject to capital gains taxes. (For more information on capital gains taxes, see "Tax implications for selling the marital residence.
Option: You Can Sell The Marital Home
This is the most popular option. It involves a couple putting their home up for sale and splitting the proceeds.
Why Do This?
Selling a home provides a clear break and closure for divorcing couples. This can also provide cash for each side to pay divorce attorney fees and settle debts. It can also help them find new living arrangements.
Remember:
If you don't own the house for two years or more, any profits will be subject to capital gains tax. (Read more about capital gains taxes in The tax implications of selling the marital residence.
Negotiating The Sale Or Transfer Of A Marital Property
A wide range of decisions must be made when selling a home, including the list price, contract negotiations, and closing date. Therefore, you, your spouse, and your attorneys must communicate well and cooperate when a joint sale is being undertaken by divorcing couples.
These are some things you need to agree on in order to sell your product successfully:
Home Improvements:
Decide if you want to make home improvements or sell-as-is.
Hiring An Agent:
It is important to find an agent that you both can agree on.
Parting The Marketing Costs:
It's important to discuss beforehand the split of professional photography, online listing, staging, and other expenses.
Setting An Affordable Sale Price:
Both you and your spouse will need to decide what the house should be listed for. This can also impact other divorce negotiations.
Thinking About An Investor Purchase:
If your spouse wants to sell their marital home quickly, they might consider selling it to an investor.
Accepting An Offer:
Congratulations! You have an offer. Both parties must agree to the terms or make a counteroffer.
Make Mortgage Payments Before Your Home Goes On The Market:
You'll still have to pay your mortgage payments while you own the house. It is important to determine who will make those payments and who will receive the principal after closing.
Splitting The Proceeds Of A House Sale:
Selling a house can be costly due to home improvements, staging fees, commissions, and fees. Before you split the profit, make sure that both the sellers and buyers have paid all expenses. These costs are often covered in the closing. These are the common payments:
Repayment of the mortgage
Repayment of any equity lines of credit
Repay any liens on unpaid property taxes
Agent fees and closing costs
Selling The Marital Home Can Have Tax Implications
Capital gains taxes are the most important tax issue you should be aware of when selling a house:
Capital gains taxes are federal taxes that you pay on the profit you make from selling your house, assuming that your house has appreciated in value. If you are selling your primary residence, most of the profit can be written off with the exclusion for home sales. If you have lived in the house for more than two years, the exclusion will allow you to write off up to $250,000 (filing separately or as a single person) and $500,000 (filing jointly). It's a good idea to consult your tax professional before making any capital gains-related decision.
Selling The House As A Couple:
If you have lived together for at least two years in the home, you are eligible for the full exclusions of $250,000 per person or $500,000 for a couple.
Selling Your Home After Divorce:
It may be advantageous to delay finalizing your divorce until your tax situation has been assessed. This will allow you to ensure that you get the maximum tax exemption.
Selling Your Home After A Divorce:
Each partner can claim a $250,000 exemption if they wait until the finalization of the divorce proceedings. This is provided that you have met the two-year residency requirements. To avoid capital gains taxes, you will want to sell your home before the three-year time limit.
Timing Of The Sale
You're likely eager to make it happen once you have both decided selling is the best decision. Here are some timing-related tips:
Selling In A Sellers Market:
To maximize your profit and accelerate the sale, you should try to sell on a seller's market where there are few buyers.
Spring Sale:
In nearly every region of the country, Spring is the best time to market. This can help speed up the entire process.
Sell In The Summer If You Have Children:
This will make it easier to transition from school to summer break.
Sell The House Before You Go To Court:
It's always beneficial to sell the home before the court gets involved. A judge will rule if a couple is unable to agree. It's expensive for everyone, and you don't have a guarantee of a favorable outcome.
You must sell your home within three years to be eligible for a capital gain tax exclusion.
Divorcing couples have three choices when it comes to timing the sale of their home.
Selling A House Before A Divorce
There are no legal restrictions regarding selling a house before filing for divorce. The transaction will be the same as if it were completed after you have filed for divorce. Selling before you file is advantageous because you both can use the proceeds to pay off debts, hire lawyers, or find new living arrangements.
Divorce: Selling A House
A Standard Family Law Restraining Order, which prohibits the sale or transfer of the family home without a court order, is typically issued to a spouse who files for divorce. Due to increased legal involvement and ongoing asset mediation, selling a property mid-divorce may be difficult and slow down divorce proceedings.
After A Divorce, You Can Sell Your House
It can be more difficult to divide the proceeds if you wait until your divorce is finalized. This is because you will need to calculate how to divide equity that has been earned since the divorce was finalized. You may also be more likely to fall behind because you will both have to pay the mortgage and new housing costs.
