Divorcing your spouse can be a very stressful and emotional time. The life you’ve built over the years is getting flipped upside down. One of the biggest unknowns in this situation is what happens with the house. Before rushing into a decision made with your heart, there are a few things you should consider with your head.
Things to Consider Before You Sell Your House
First of all, can you afford to keep the home with your current income? There are a lot of factors that come into play with homeownership. Consider if you can afford not only the mortgage payments every month, but also the maintenance, the property taxes, the insurance, etc. The last thing you want to do is keep the home just because of emotional attachment. And then end up falling into bankruptcy or foreclosure because you can’t keep up with all of the financial demands.
You’ll also want to consider whether you’re willing to give up other assets just to keep the home. It might be the car or some furniture or a vacation property. Is it worth giving up other assets you’ve accrued over your marriage? If things are split up by value, then the house might be as valuable as many of the other assets combined.
Do you want to run the risk of your ex-spouse taking over the property and missing mortgage payments? If your ex can’t make monthly mortgage payments and you’re on the mortgage, it will negatively impact your credit score.
Are you sure you wouldn’t rather get a clean emotional slate living somewhere else? There can be a lot of old memories that make it hard to move on when living in the same space as you lived with your ex. There are a lot of mental benefits of starting fresh somewhere new.
In most cases, selling is the most beneficial decision for both parties. Not only is it typically the most fair and safe for both people (which is beneficial for future relations being amicable – especially if kids are involved), but it’s also advantageous from a financial perspective. Let us walk you through different options for selling and how they are helpful.
Two Different Paths
Option 1: Sell the House and Split the Profits
- If you sell before the divorce is finalized, it’s a great way to avoid paying extra capital gains tax. When a single person sells their home, they might qualify for up to $250,000 in exemptions. But when a couple sells, that amount can double, which means they would have to pay less tax on the same transaction. If you sell prior to divorce, it also ensures the profits evenly split between the couple, which avoids anyone getting left out to dry later. See our article about Capital Gains Taxes.
The most common method of selling your home would be the traditional way. This includes hiring a real estate agent and listing the property. You will jump through hoops to fix the house up and make it more appealing for buyers. If you have nothing but time and have no issue covering the costs of keeping the home for a while, this is a potential option for you. However, in most divorce situations, time and money aren’t as readily available. You might not have the months it can take in order to sell your house via the traditional route.
Ask yourself – do you really want to have to deal with your ex any longer or would you rather be able to move on and put the past behind you?
Option 2: Negotiate an Arranged Price with Your Ex
- The second selling option will allow you to move away from your ex more quickly, but you’ll be taking a bigger risk independently. In this case, you can “buy out” or create an agreement so that you keep the home. Your spouse gets equivalent value from the other assets that you jointly own. The major advantage is that you are able to expedite the separation from your ex. However, the disadvantage is that you lose the extra $250,000 in capital gains tax exemptions that you could have had. And if you’re the one taking the house, you need to continue to make payments for the mortgage, taxes, insurance and upkeep. Make sure you can afford to make all the payments yourself!
As we mentioned above, traditional home sales can take an extended period of time. If you’re struggling to keep up with property taxes, the mortgage, etc., you may find yourself settling for lower offers than the house is worth just to escape the financial nightmare of it all. Maybe you really want to stay in the house for the years to come! In which case, giving up other assets isn’t a bad decision. However, if you are counting on selling the house quickly because you know you’ll only be able to stay afloat a few months, using option two is not a good idea.
So, what’s the ideal scenario here?
The best route you could take that would benefit everyone would be to sell to a cash buyer prior to your divorce finalizing. Cash buyers typically don’t mind if the property needs work upkeep. They have seen most situations, so nothing will bother them. Selling to a cash buyer can mean your house is sold within just a few weeks. You can split the profits quickly and take advantage of the higher capital gains tax exemptions. Most importantly, you’ll finalize your divorce so you can move on to your new start.
If you are going through a divorce and would like to put all of it behind and start fresh, reach out to us. Fill in your information on the sidebar and we’ll get back to you within 48 hours. We focus on property investment and may be able to offer you cash for your home and help you move on in a positive direction with your life.
For more information about selling to a cash buyer, click here.
We hope this article provided you with some insight on what options you have at this difficult time in your life. Please remember, this content is SOLELY for informational purposes and is not meant to be used as specific legal advice. Situations vary state to state, so always consult a licensed attorney in the area when making any decisions. We’re working on providing further state-specific content. Take a look and see if we have an article for the state or city you live in!