When going through a divorce, one of the first things that may come to mind is whether or not you should sell the marital home. Divorce and selling a house or other real estate are probably two of the most stressful life events.
Going through both at the same time can be ten times worse. Questions about homeownership can become complicated to deal with when facing a divorce.
For many couples, their home is their most significant asset, and it usually holds a fair amount of sentimental value. As much as one or the other may want to keep the home, the situation often demands getting rid of it.
This can be due to financial, legal, or personal reasons, but ultimately, they must unload the property.
Knowing how it affects the sale of a house, including reasons to sell, is essential.
As emotionally trying as the divorce process is, a wrong move concerning a home can come back to haunt you for many years – long after the annulment is said and done.
We will examine everything you need about transitioning back to being single.
Who Gets The House in a Divorce
There are usually one of three scenarios that take place for most couples who go through a dissolution of marriage:
- One of the spouses buys out the other legal interest and keeps the home. A buyout is among the most common decisions in a divorce decree.
- One spouse keeps use and occupancy of the home for a specified period; typically, when the youngest child turns eighteen, the house can be sold.
- The house is sold immediately, and the equity, if there is any, is split up in some fashion. The proceeds can be distributed during the divorce proceedings or by court order if the negotiations break down.
Selling a house and getting divorced is a tricky business that should be thought through thoroughly!
Legal Reasons to Sell a House With a Divorce
Some annulments involve two people who can deal peaceably and reasonably with one another. If this is the case in yours, you can discuss the best options for your situation and act accordingly. However, in many cases, the division of property and everything else is not cut and dry.
The family house often becomes part of a property dispute.
Each of you contributed to the purchase – even if one did more than the other – and each wants their fair share. If you cannot agree out of court, either on your own or through mediation with your attorneys, the courts will decide for you.
However, this is not a pleasant experience for most homeowners, as the judge rarely decides precisely what either party would like.
This is why it is always advisable to agree beforehand, if possible. Many times, the most straightforward solution is to sell your house. When the family home is sold, the division of assets becomes more comfortable because you are not trying to figure out the house’s future value.
You can get the current market value from an appraiser or competent local real estate agent. The appraisal will detail the current value. It will be a big help in determining the right asking price. Any Realtor will tell you the right price is paramount to sell a home fast and for the most money.
Financial Consideration For Selling a House During Divorce
When you sell a property during a judicial separation, it can create some significant financial concerns. Because you were married, there is an excellent chance that your mortgage is based on both of your incomes.
Cut that salary in half, and you understand very quickly why the residence you managed to buy required both of you to pay for it.
Even if your income is the higher of the two, house payments, insurance, property taxes, and upkeep can all eat away at your finances. For most spouses, these debts are too much to handle.
There are substantial liabilities with owning and maintaining. Homeownership can eat into a significant amount of your resources and cash.
Understanding Capital Gains Laws is Essential
One of the critical financial aspects that should be considered is the real estate capital gains tax ramifications. The current capital tax gains law says that you can exclude up to $500,000 in profit if you are married and selling a house.
If you are single, the capital gains exclusions drop in half to $250,000. You must have lived in your home for two of the last five years to be eligible for this exclusion. The home must also be your residence and can not be an investment property.
This is where it becomes crucial for both parties to think this through properly. Essentially, you have an enormous financial incentive to sell the home while you are legally married.
Selling the marital home will exclude up to $500,000 in profit from federal capital gains taxes. So, the tax implications are enormous.
Couples can apply for this tax break if they file joint tax returns or separately. When filing separately, each partner can still claim up to $250,000 on their tax return, provided they again meet the two-out-of-five-years-living in-the-property qualification.
If you have owned your house for a significant amount of time, and there has been substantial equity growth, this can amount to significant tax savings.
If one party chooses to remain in the home but plans on selling sometime in the future, there could be quite a difference in tax savings. This makes selling a house while getting divorced something that needs to be planned carefully.
Emotional Reasons to Sell
Divorce and selling a home usually go hand in hand because of the psychological issues stemming from keeping the property. You may have built a happy and fulfilling life in your home, including pets and children, and improvements to make it just like you like it.
However, with your spouse’s departure, the once-happy property can quickly become unpleasant. Memories of better or bad times can taint the comfort you once experienced in your house. Some people are not interested in going through these feelings day in and day out.
This is, in fact, one of the more prominent reasons that one of the parties may decide at some point in the future that keeping the house was not all that it was cracked up to be.
The emotional factor is also something people don’t think about enough. There are so many things going through your mind when going through a separation that often, your judgment can become clouded.
Many people will end up needing a therapist before, during, or after a divorce. Emotional support is a normal part of the process.
Think About Liability When Divorcing
Liability is usually enough to seal the deal for divorcing couples if the first two reasons are insufficient. Even if one person wants to keep the house, the other spouse should understand what that will mean.
There are multiple ways to keep a property and let one spouse remain in it, but each carries difficulties and risks.
Who Takes Over The Mortgage?
If the spouse who wants the home has enough income, they could take over the loan and make the payments. This requires talking to the lender and refinancing the house – meaning the person must qualify – but some can do this.
If you can accomplish this, it removes the other spouse from the equation altogether – therefore eliminating their liability – but not many people have this kind of income.
Of course, you must also answer how much equity the departing spouse has in the home and either buy them out or set up a payment plan. This probably means consulting a divorce attorney unless you separate on the best terms.
Co-owning the Home Continues
If you have children and want to keep them in the same house, you could both stay on the mortgage to create as little disruption as possible. The remaining spouse can make total payments, or you can both agree to a percentage.
This requires considerable trust, though, because should the remaining spouse fall behind or fail to make the payments, the departing spouse will suffer the same credit issues and mortgage problems.
Winning at All Costs Can Work Against You
One of the unfortunate things I have experienced in some separation scenarios is one party’s desire to “win” at all costs.
There have been occasions where one spouse insists on keeping the house even though it is not a prudent financial decision because they see it as winning a significant battle.
In other words, their judgment becomes clouded from going through a traumatic event they may not have wanted.
When one party ends up keeping the marital home, for this reason, there are times when, later on down the road, they realize that maybe taking on such a substantial debt and all the expenses that come with homeownership were not such a good idea.
If you decide to keep the marital home, you must ensure you can afford the mortgage payments and all the other fees that come with homeownership that you may not be considering.
Many couples getting divorced underestimate what it will cost them to live once the dissolution is finalized.
One of the things you should be doing when contemplating keeping the home is to develop a comprehensive budget before you lock yourself into a settlement.
Don’t think about keeping the home in a divorce as a “win” if it will bury you financially somewhere down the road.
Do You Live in a Community Property State?
When circumstances dictate a separation, spouses must understand how houses and other assets are treated. In community property states, items owned by a spouse before marriage are treated as their property.
A community property state also includes gifts and inheritances in this too. The other thing to know is that all assets acquired during the marriage are generally split equally in a community property state.
Before you file divorce papers, knowing how the law works in your state is essential. It will help you understand the factors that will contribute to your contribution. In other words, how will all the marital property be divided up?
See how community property will work in your state in Experian’s helpful resource.
How To Sell Your House
Selling a home during a divorce is much like selling real estate any other time, except that you MUST lay the groundwork beforehand that determines who gets what.
A Realtor helping you sell the home for a fair market value should be possible when you follow your agent’s advice. Before this happens, you should have decided how the money from the sale will be divided.
This decision-making process is best achieved through your family law attorneys. Let them guide you through the process of deciding equity.
This will involve thoroughly examining the history of your marriage related to the property and consulting one or more real estate appraisers. It would be best if you had a good idea of what your home is worth and the value of any improvements you made to the house. Don’t forget to factor in any necessary repairs.
Once this is decided, bring in a reputable real estate agent – one hired based on interviews, credentials, and sale history – and get your house on the market.
Follow their advice, and be willing to compromise a little. Selling for less than you might want can get the home off your hands faster and help you move on with your life.
The Realtor You Select Is Important
When going through a legal separation, you will want to work with a Realtor with exceptional communication skills.
Given that the two parties might not get along that well anymore, you will want to work with someone who understands the nature of divorce and all the emotional baggage of this stressful life event.
The Realtor you choose to work with will have a certain level of patience, as all communications could be repeated multiple times.
The agent you ultimately decide to work with is a process that should be worked on together. As an agent who has worked with numerous couples over my thirty-seven years in the business, I have found that if one party selects the Realtor, the other feels slighted.
Human nature kicks in, and the instinct is to feel that the Realtor will play favorites because of an established relationship with one party.
The Real Estate Agent Should Be Meeting With Both Parties
When I am hired to represent a divorcing couple, I want them present for any listing interviews. I want them to understand that I represent both of them equally.
There is no favoritism involved. I prioritize selling the house for the most money possible in a reasonable amount of time with the least amount of headaches.
Creating an atmosphere of trust where either party can call me anytime. Going through a separation is stressful enough as it is. Adding a home sale on top of it can make you feel like your life is upside down. Striving to make the home sale process go as smoothly as possible is always one of my goals.
While going through a divorce brings a different set of challenges, the real estate agent you should work with should have some experience with breakups and a strong track record of success. There will inevitably be conflicts and disagreements. The agent needs to be skilled at handling these roadblocks.
Selecting a Realtor with divorce experience is incredibly important when selling a home during a marital separation. Yet, many sellers do not take the time to make a sound business decision. Being in the business as long as I have still puzzles me how lazy some people can be when choosing a Realtor.
You would think that selling one’s most significant asset would bring a determination to choose one of the best agents. Often, this is not the case, and no research is done to make the best selection. Divorce and selling a house at the same time can be very stressful. Make sure you are well prepared for this endeavor.
Moving Forward: Buying or Renting a New Place
After a divorce, deciding whether to buy or rent a house requires careful consideration of various factors. Here are some matters to keep in mind:
Financial Stability
Assessing your financial situation is crucial. Take into account your income, expenses, and any existing debts. Consider how much you can afford for monthly mortgage payments or rental costs. Additional fees include property taxes, insurance, maintenance, and utilities.
It’s essential to ensure that your housing expenses fit within your budget and won’t strain your finances.
Long-Term Plans
Evaluate your long-term plans before making a decision. If you foresee a need to relocate due to work, family, or personal reasons, renting might offer more flexibility and less commitment.
On the other hand, buying a condo or house could be a better option if you desire stability and a sense of ownership.
Consider whether you want to settle down in a particular area or if you anticipate any changes in your living arrangements.
Emotional Factors
Separation can be emotionally draining, and finding a new place to call home is an opportunity for a fresh start. Consider how buying or renting a house aligns with your emotional needs.
Owning a home may provide stability and control, while renting can offer a more carefree lifestyle without the responsibilities of homeownership.
Market Conditions
Evaluate the local housing market to determine whether it is favorable for buying or renting. Research property prices, rental rates, and market trends in the area you are interested in.
If property prices are high or the market is competitive, renting may be a more affordable and practical choice. However, buying could be a wise investment if there are favorable mortgage rates or potential for property value appreciation.
Personal Preferences and Lifestyle
Consider your preferences and lifestyle when deciding between buying or renting. Buying a house allows for customization and the ability to make structural changes. On the other hand, renting typically offers less flexibility regarding modifications.
In addition, consider factors like proximity to work, schools, amenities, and the type of neighborhood you prefer.
Seeking advice from a financial advisor or real estate professional can also help make an informed decision.
Interesting Facts About The Process
1. Approximately 47% of separating couples end up with the house sold as part of the settlement.
2. On average, homes sold during divorce proceedings spend 32% more time on the market than regular home sales.
3. Selling a house during a breakup can make a sales price 18% lower than the market value.
4. It is estimated that 1 out of every five couples experience difficulties agreeing on the listing price for their shared property.
5. About 61% of real estate agents report experiencing challenges when dealing with separating clients during the sale of their home.
6. Typically, divorce-related home sales take around 42 additional days to close compared to non-divorce-related sales.
7. According to surveys, in 76% of divorce cases, both spouses consider selling an essential step towards moving on emotionally.
8. In instances where one spouse remains living in the marital home post-separation, studies show they are more likely to sell it within five years.
9. Around 37% of couples opt for alternatives like renting out their shared property rather than selling it immediately.
10. Studies suggest that selling shortly after divorce proceedings can help reduce financial stress for both individuals involved by up to 35%.
Final Thoughts
Once your home has been listed for sale, you’ll receive an offer at some point. Both parties need to be on the same page. Sometimes, real estate market conditions are fluid. You might not end up with an offer for what the appraiser or real estate agent has suggested.
The comparative market analysis to establish value could change if the real estate market is in flux.
Spouses need to remain in communication during the home sale process. Things change often in real estate, so staying in touch is essential. Lean on your real estate agent for advice and listen to them.
Keep an open mind when negotiating offers. Keep in touch with your divorce attorney and let them know when an offer is in hand. Above all else, try to keep the relationship with your spouse amicable. Keeping the process civil with each other will make the process quicker and smoother.
Feel free to reach out if you have a home to sell in the Metrowest, Massachusetts, area.
About the Author: The above Real Estate information on selling a house before, during, and after divorce was provided by Bill Gassett, a Nationally recognized leader in his field. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 37+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
Another well written article every divorcing couple should read. The emotional factor is the biggest hurdle for them and there are many couples who can’t look past it.
Thanks very much Petra. Going through a divorce and selling real estate at the same time is a lot to put on ones plate at one time. When the divorce is not amicable it really is ten times worse!
I greatly admire agents who willingly tackle selling homes during a divorce. When I was an agent I only had to do it a few times, and didn’t like it. Having both spouses calling every day to tell me what the “rotten other” did now, trying to get them to agree on anything, and needing two separate meetings every time a paper needed signatures was just no fun.
Marte there is no doubt that selling real estate during a divorce is far more challenging than your typical sale especially when the parties are not getting along!
Great post!
I would consider my choice emotional- my kids wanted to stay in the house, and given the trauma to which they were subjected, it meant I had to stretch to maintain the large costs and size of the house. Now, some dozen years later, with the kids grown, I am finally moving on.
Thanks Roy. Divorce can be hardest on the kids so I can understand your choice to stay even though it was financially difficult. Best of luck in your next home!
Bill, you are correct in that there are only 3 options. Buy one party out, sell the home or the parties agree that one spouse will remain in the home until the children turn 18. We have seen that a lot in our business.
One of the problems that presents itself is when one spouse wants to keep the house (when there is no equity or negative equity) and cannot refinance. In these scenarios, the party remaining on title is at risk of negative credit reporting should the other spouse default. But without the ability to refinance, one will remain on the loan.
Great point Tim! I have actually experienced this scenario a few times over the past five years while representing divorcing clients in a short sale. This is one of those situations where it really makes sense to understand the ramifications of what you are agreeing to in your divorce settlement.
A divorce makes real estate difficult, my x is a lawyer. Guess how mine turned out! She still has the house and our child is going to grow up in the house. I know that most people have problems with divorce and real property. It has been 6 years and things are getting better. Keep your chin up.