Divorce and Selling a Home in Massachusetts
If you are getting divorced and own a home, you must decide if you and your spouse will sell the home and vacate the property, or if you will buy out the other spouse. Some couples also opt to continue to own the property jointly.
Your home is most likely your largest asset, so even during a difficult divorce it’s important to keep your head clear and emotions in check. Many couples view the marital home as the symbol of their marriage, and to create problems one spouse may go to great lengths to draw out the selling process if they don’t wish to sell. Or they may fight over who gets to stay in the home. If there are children who still live in the home, this can complicate matters further.
If you have to sell your home because of divorce, here is an outline of your options:
Selling Your Home
The first step to selling your home is hiring a real estate agent that will work with both you and your spouse to get the home sold quickly and for the most money. An experienced real estate agent will advise you on how to show the house, advertise your home for maximum exposure and negotiate with qualified buyers to get the best offer. Buyers may inquire about why the home is being sold but an experienced agent never reveals a client’s motivation since it can be used against the divorcing couple.
A real estate agent should also remain impartial during the process, which is an asset during this emotional time. With all of the legal issues you have to face during divorce, a real estate agent can take care of a all the complex details involved in selling your home.
If you make a profit from the sale of the home, this is considered a capital gain. You are excluded from paying taxes on the gain up to $250,000 (or $500,000 if filing jointly) if you and your spouse live in the home as a primary residence for the past 2 years.
If you and your spouse also own investment property, the tax on capital gains could go up to as high as 20% at the end of this year because the so-called “Bush Tax Cuts” are set to expire. Many property owners don’t want to take a chance that the tax cuts will be extended and then end up paying thousands of dollars more on gains made on the sale of their property, so they are choosing to sell now.
Keeping Your Home
Some couples decide to keep the home in order to avoid uprooting the children and changing schools.
The first question you should ask before deciding to keep the home is: can you still afford the home after the divorce? People often underestimate the costs of owning a home after divorce, even if the spouse staying in the property will receive child support and/or alimony. The cost of basic home upkeep, yard maintenance, insurance, taxes, heating and cooling the home, repairs, and updates can quickly add up. You may want to tally up all monthly home expenses before making your decision.
If you do decide to keep the home, one spouse—often the custodial parent—remains in the marital home and must refinance the home to remove the other spouse from any financial obligation. They must then buy out the other spouse’s equity.
This involves hiring finding the current value of your home, and subtracting the remaining mortgage owed on the property to get the equity. This will be split in half and paid to the spouse who will not remain in the home. Refinancing the home will mean you will now have to qualify for the loan based on your current income.
Owning the Home Jointly
Homeowners may choose this option if one spouse cannot buy the other spouse out if there is a large amount of equity in the home, or if they believe the home’s value will increase in a few years. They also may not want to sell the property because they want to wait for the children graduate from high school.
Co-owning a home after divorce requires a great deal of cooperation and trust between the spouses. Issues often arise when a divorced couple owns a home together. If one spouse doesn’t pay his or her portion of the mortgage, for instance, the home can fall into foreclosure and hurt the credit rating for both spouses. The spouse who doesn’t live in the home may have a hard time qualifying for a new mortgage on their own. And some couples don’t enjoy being tied financially years after a divorce.
If you decide to sell your home, be sure to contact a real estate agent to get the process going. A couple key tax laws related to selling your home will expire at the end of the year, so the sooner you get the home listed the sooner you can get closure on this aspect of your divorce.