While many counselors advise widowed individuals to wait a year before making major decisions like selling a house, a divorce often requires quick choices in the midst of turbulence. One of the more difficult decisions you may face is what to do with your home. Despite potentially strong emotional ties toward it, you need to weigh the financial considerations of different options as objectively as you can.
If you and your spouse agree to sell the house immediately, you will have to work together to choose a real estate agent, assign an asking price and get the home ready to show. As a couple, you will be able to make up to $500,000 in profit without having to pay capital gains taxes, provided you both lived in the home two of the five years before the sale. Selling the home produces a clean break and the freedom to decide whether you’d like to downsize, rent or move to a different locale.
A second possibility is to stay in the home and buy out your spouse or trade other assets, which may be more liquid or have different growth potential. Because you won’t need a real estate agent in this situation, you’ll have to agree on a price. You might hire an appraiser or go online to a site like Zillow.com or EAppraisal.com, which will estimate your home’s value based on your address. To evaluate the costs of keeping your home, factor in mortgage payments if it isn’t paid off, insurance, property taxes, utilities, regular upkeep and major repairs. Becoming the home’s sole owner also means you’ll only be eligible for a $250,000 tax exclusion on profits when you sell. It’s simplest to refinance a mortgage in your name, but that can be costly if you don’t remain in the home for some time.
Should you plan to sell in a few years after a child graduates or as soon as depressed housing prices come back, you and your spouse may choose to continue to co-own the home. Sharing the mortgage, repairs and expenses can get complicated, and both individuals’ credit report will show the amount of mortgage, which can limit a spouse’s ability to purchase another home.
If your spouse wants to keep the home and take over the existing mortgage, remember the mortgage holder can look to you for payment if they default. So consider asking your banker if they will approve a release of liability provision to the agreement.
A Certified Divorce Financial Analyst can work with your attorney to ensure you have the information you need to make decisions that make the most sense for your financial situation.