Divorce and Selling A Home – The Various Implications
Divorce and selling a house is no ordinary transaction, it is not only traumatic but you are also looking to secure your financial future. You are also facing an overwhelming lot of emotions as severing ties with a place where you have spent some of your best years is not easy. However, if it comes to that and you have to seriously consider selling your house during a divorce, be rational, have a cool head on your shoulders, and prepare for it both mentally and legally.
Laws governing selling your home during divorce
Knowing the laws that are relevant to your state is crucial when you resort to divorce and selling a house.
There are two aspects here – community property or equitable distribution and both impacts how your property will be divided and the proceeds split between the spouses.
Most states in the USA (41) follow equitable distribution where the property is divided fairly but not necessarily equally. The split could be 70/30, 60/40. 50/50, or anything else. The court decides the ratio based on several factors like length of marriage, earning power of each spouse, who bought the house, and contributions made by each spouse.
In a community property state, assets acquired during marriage are split equally between the spouses.
When you know the approach of your state to dividing property, you can follow an ideal strategy when negotiating a divorce settlement and selling a home during a divorce.
In case both spouses cannot come to a settlement about disposing of marital property, the court will step in. This is called a partition sale and the court will decide how the proceeds of the property will be divided. This is a time-consuming affair and can prolong the divorce process itself. Knowing these consequences should motivate the parties to negotiate and reach a consensus about divorce and selling the house.
However, your lawyer might refer a real estate agent to help you sell your home. It is wise not to fall for it. The agent will prioritize the relationship with the lawyer for more future referrals instead of keeping your best interest at heart. If you need expert, professional, and unbiased services while selling a home during a divorce in the Denver, Colorado region, get in touch with us at Just Livin Realty. You will get the maximum returns from the sale of your house.
Options for selling a home during divorce
# One spouse buys out the other’s share of the property. This is ideal if you have young children who might find it traumatic to be suddenly uprooted from the place they grew up in.
This is how a typical buyout works.
First, the parties sit together and assess the fair market value of the property. A real estate agent or an appraiser should be roped in at this stage. Then, factor in the mortgage balance or any other home equity credit lines. Finally, calculate the equity interest of the other spouse. The one keeping the house should now think of funding the buyout.
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There are two ways of doing so. One is that the spouse keeping the house may offer a lump sum amount to the other from personal savings or liquid assets that can be sold. The other is to refinance or take a second mortgage. But in this case, the spouse should have enough earnings to qualify for a mortgage on a single income as well as the ability to pay maintenance, taxes, and insurance for the house in the future.
Once the buyout is completed, the spouse selling the house will receive the proceeds, sign over the ownership rights, and leave the house officially.
When this type of financial buyout is not feasible, there are other options to fall back on.
# Keep the house for some time and then sell it. This is ideal if none of the spouses can afford a buyout. Couples who are divorcing can retain the house for a specified period before they sell it. Generally, it is a time-bound deal like waiting for the youngest child to reach the age of 18 or another completing high school.
In this arrangement, one partner lives in the house and takes care of all the financials like the monthly mortgage payments and taxes. While the person living in the house has all the financial commitments to keep, the other too remains tied monetarily until the house is sold. If there is a mortgage default or foreclosure, the credit scores of both spouses will be impacted.
# Sell the house immediately and divide the equity. This is considered the best option when selling a divorce home and is pretty simple and straightforward without any legal complications. It is also ideal for spouses who cannot afford a house of their own. There is another major benefit here. The spouses get funds to make a fresh start in life and despite the emotional turmoil of a divorce, having the financial freedom to move forward with life is priceless.
When is the best time for divorce selling a house
If a divorce is inevitable, when is the right time to sell the marital property? Generally, it is between the time that a divorce agreement is in place and before the divorce is final. Here are a couple of reasons for it.
# Avoiding or minimizing capital gains tax if you sell your house while still officially married. After you sell your house, the profit from the sale is taxable. This is $500,000 for married couples but $250,000 for singles. Both you and your spouse get to keep a larger share of the profit from the sale if you go through the process while officially married.
# You can avoid disagreements if you sell your house before your divorce is final. You can have an agreement in place to go through showings and prepare the house for sale. After a divorce, your attorneys will take over and you will not have much of a say in the proceeds of the sale.
When you are selling your home during divorce, get in touch with us at Just Livin Realty. We will guide you through the complete process, making your life easier during your emotionally troubling times.