By LIZ KEENAN and LEXIE BREW | Special to the Palisadian-Post
Whether amicable or contentious, a divorce is emotionally trying. With your personal happiness and your children’s welfare at stake, it can be difficult to make the best financial decisions.
One question that can be especially troubling for divorcing couples is what to do with the family home. Deciding who gets it or whether to keep living there raises tricky questions.
Sell or keep? If neither spouse can afford the house after divorce, then selling is the most common option. (Other reasons to sell include making it easier to divide up assets and getting a fresh start by leaving a home that now has unhappy memories.)
As painful as it might be to lose your home, there may be a financial benefit to selling your house during a divorce. The law provides that as long as they have been living in the house for two of the last five years, a married couple can exclude $500,000 of profits on their tax returns. This tax break is available both to couples filing a joint tax return and to those filing separately (in which case, each gets an exclusion of $250,000).
Selling your home during a divorce can be highly emotional. Ideally, you should work with a real estate agent who has experience with selling a home amid a divorce, is competent and patient, and can work well with attorneys.
An agent who is unprepared for the emotional difficulties in this situation can make the selling process even harder. Your agent should make a plan regarding who will be the point person for routine questions (whether to stage or make repairs, when showings can take place) and whether there will be one or two decision-makers when it comes time to negotiate an offer. Having a plan in place beforehand to avoid disputes between spouses is crucial for making a sale during a divorce go smoothly.
If the house will not be sold, there are ways to accomplish one spouse keeping it. Sometimes, debt on the house is paid off in connection with dividing marital assets and debts.
More commonly, one spouse is awarded the house, but with the obligation to pay off the existing debt. In this situation, the spouse might need to refinance or assume the existing loan. In these cases, the spouse must qualify separately. Regarding alimony, lenders typically require a record of two years of spousal support before alimony can be applied toward qualifying income.
For the spouse who keeps the house after a divorce, renting it may make financial sense, especially if the mortgage payments and other costs of ownership become too burdensome. Being a landlord, however, brings its own challenges, so it is important to make sure you can afford the mortgage payments and all the other expenses that come along with home ownership before deciding to keep.
Another option is that both spouses can continue to co-own the house with only one spouse occupying it for a period of time (often until the youngest child turns 18), after which the house is sold. When choosing to co-own the home, both spouses can stay on the mortgage and make payments in whatever way they agree.
While this option may benefit the children, it requires a great amount of trust and cooperation because if one spouse fails to make any payments, it could damage the other spouse’s credit and ability to borrow in the future.
Deciding whether a house should be sold during a divorce can present one or both spouses with difficult challenges. It is important to talk to a reputable divorce attorney and an experienced Realtor before making any final decisions.
Lexie Brew and Liz Keenan are two of the top-producing Realtors at Coldwell Banker. Lexie also is an active member of the California Bar Association and has a JD from NYU School of Law.