As one of the most valuable items you will own, home ownership can become a pivotal issue in a divorce. If you currently own the home with your spouse, a decision will need to be made on how the home will be affected in the divorce. If one of you owns the home independently, the other should probably consult with a lawyer to seek legal advise on how the home ownership will be dealt with in the divorce. But there are several other issues that need to be considered.
Can You Afford To Keep It?
As a married couple, you may have been able to afford the mortgage as well as the maintenance costs of your home. But as a single homeowner, you will need to calculate whether you can afford the cost of home ownership. Beyond the mortgage, the home will also incur expenses for insurance, repairs, maintenance, utilities, taxes and any other expenses in your particular situation.
Will you need to buy your spouse out?
You may need to buy out your spouse’s portion of the home, which may require refinancing or a second mortgage. This may not be possible, and the roles may be reversed with your spouse having to buy you out. Either way, you will probably need to hire an appraiser to obtain a valuation on the home.
Can You Afford To Sell The House?
Once you have the home valuation, you will need to determine what your equity position is. You need to consider what you can sell the home for minus what is still owed on the mortgage. If you need to split the sale proceeds, you would end up with 50%. Is that enough to start over?
[custom_table]
| Sale price: | $250,000 | ||
| Mortgage balance: | $125,000 | ||
| $125,000 | |||
| Less: expenses/costs | $ 25,000 | ||
| Net sale: | $100,000 | ||
| YOUR net proceeds: | $50,000 | ||
| *for illustration purposes only | |||
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Is joint ownership an option?
If you have children in school, you may want to remain in the house until they graduate. A financial advisor and attorney can help you understand the financial and legal implications of this decision, and how potential gains upon the sale might impact you, your spouse or both of you.
Taxes
Again, whether you stay in the house or not, there could be tax implications especially capital gains. If you have lived in the home for at least two of the five years prior to the sale, Individuals are allowed up to $250,000 in tax-free capital gains when they sell their home, while couples are allowed $500,000. There is no age requirement.
Real Estate Transaction(s)
A divorce can result in multiple real estate transactions. The first transaction could be between the current couple with one being a buyer and the other a seller. The buyer needs to consider this the same way any buyer would with a real estate agent assisting them. They will need to:
- conduct a title search
- check for liens
- have a home inspection including termite inspection
- consult with a mortgage broker/counselor to ensure that they can afford the home as a sole owner
- have the deed modified with a Quit Claim Deed process to reflect ownership
Next steps
We can work with you to help make this transition a little easier. Let us know how we can help.