Ending a marriage is a difficult decision that is made even more challenging if you are uncertain about what divorce will mean to you as a homeowner. It is important to understand how a court may view your home as an asset subject to distribution in order for you to make the best decision for you and your family.
An Equitable, but not an Equal Distribution
Divorcing spouses must ultimately divide and equitably distribute their assets, including, in many cases, their home. How the home is distributed depends on when the home was acquired and whether it may be considered “marital property” or “separate property.”
Marital property is generally property acquired during marriage by either spouse, irrespective of who takes actual title. Separate property on the other hand includes property that was:
- Acquired before marriage;
- Excluded from marital property by an earlier agreement such as a prenup;
- Acquired by one of the spouses by gift or inheritance; and
- Acquired by one spouse as a result of a judgment or settlement.
Courts distribute marital property “equitably” between the spouses. Contrary, to popular belief, an equitable distribution seeks a fair division of property and not necessarily an equal division of property in consideration of the full economic circumstances of the spouses. A home that is classified as marital property is no exception; each spouse is entitled to their own equitable share in its value.
So, what is a homeowner facing divorce to do in the face of a court that is instructed to divide property as it sees “equitable?” There are a few routes that may be taken.
Selling the Marital Home
Perhaps the most fundamental decision to be made regarding the marital home is whether to sell it or keep it. In some cases, selling the marital home may offer the cleanest break and the most closure for the couple. It also may be the most convenient option financially as it provides each party with a share of the proceeds of the sale less any selling costs.
Keep in mind, however, that selling the marital home nevertheless requires a great deal of negotiation and agreement between the parties on matters of making home improvements, hiring agents, accepting an offer to buy, and exactly how the proceeds will be divided.
Further, the timing of the sale is huge. While there are no restrictions on the sale of the marital home before filing for divorce, once either spouse actually files, a court will typically place a restraining order on the sale of the home.
It is also important to remember the tax implications of the sale—particularly the application of the capital gains tax. Capital gains taxes are federal taxes paid on the profits made upon the sale of a home which has appreciated in value. While you may be able to write off most or all of the profits made on the sale through the home sale exclusion, the timing of the sale as occurring either before, during, or after the divorce and your status as a joint or single filer is certainly a factor to be considered.
Keeping the Marital Home
It is also unsurprising that either or both spouses may not want to part with the marital home. Before deciding whether to negotiate to keep the home, it is essential to determine whether you can afford your mortgage payment and property taxes on your income alone. Obviously, there is also room for plenty of disagreement as to what an “equitable share” in the value of the home looks like to each spouse. Accordingly, it is important to eliminate as much uncertainty as possible by getting a professional appraisal to determine the fair market value of the home.
With the capability of sole ownership and an assessment of the fair market value of the home established, divorcing spouses have a number of options:
- Agreement to Divide Large Assets
While the marital home is often a large financial asset and sometimes may take up the majority of the couples’ economic value, a couple with multiple large assets may negotiate and agree to divide them equitably. This is perhaps the quickest and easiest means of finalizing a divorce as it keeps the distribution out of a court’s hands. Keep in mind, however, that this option nevertheless involves negotiation with your former spouse to determine what a fair distribution looks like.
- Buyout Your Ex
If you want to keep the marital home for yourself and you have a significant amount of separate property that is not already subject to equitable division, it may make sense to buyout your spouse’s interest in the home by paying the fair market value of your spouse’s equitable share in the home in exchange for sole ownership. The buyout is accomplished by refinancing your mortgage and removing your spouse from title to the home via a quitclaim deed.
- Co-Own a Divorce Home
More amicable divorces sometimes find the former couple agreeing to co-own the marital home after divorce. This means agreeing on how and when the mortgage payments will be split each month, when the home will eventually be sold, and how the profits will eventually be divided. Keep in mind, that this option keeps the spouses bound to each other financially far after the divorce is finalized.
Schedule a Pre-Divorce Consultation to Gain Clarity
We welcome the opportunity to review the facts of your potential divorce and answer any questions you may have. We charge a flat fee for a pre-divorce consultation. There is no obligation to enlist our services going forward, though a consultation such as this will provide you a good feel for whether you want us to represent you.