Home sale prices dropped during the past few years, and in many communities the market is starting to move up, with buyers outnumbering sellers. But even so, if you are divorcing, selling your home can be a challenge in dividing up your assets.
Your home likely is the largest asset that you and your spouse own, and it is also the most difficult to divide. You have three choices in divorce: keep the house, sell it, or continue joint ownership. If you decide to keep it, make sure you can afford the costs associated with your house, including maintenance, repairs, home ownership association fees, gardeners and other household expenses. You may be able to afford the mortgage, but the other expenses could break your budget.
If you and your co-owning spouse decide to sell, you will share the costs of sale and you can exclude up to $500,000 of capital gains. If on the other hand you become the sole owner of the house in the divorce settlement, when you eventually sell it you’ll have to pay the entire cost of sale and capital gains liability, and you’ll only be able to exclude $250,000 of gain. Anything you pay to your ex for his interest in the home won’t reduce the gain when you sell the home down the line.
Owning a home can be an expensive proposition for a newly single individual, especially given today’s beginning recovery. If you can’t buy your spouse out and anticipate that prices will be higher in the future, you and your spouse may decide to own the home jointly for a few years after the divorce, and sell down the road. Specify in your agreement when the home will be sold, for example, when the children are grown, and split the proceeds when that time comes.
If you decide to own the home jointly for a few years, you must get a written agreement or court order granting you exclusive use of the residence and keep your ex’s name on the deed. The house will then be considered your ex’s primary residence as well, and he will preserve his ability to exclude $250,000 of gain when the house is sold.
In divorce you’ll end up with far less than you had before, so decide what is most important to your future. If you give up retirement assets to keep the home, develop a plan to build a nest egg for later in life. A bit of advance planning goes a long way.