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Divorced couple decide how to share a house

Do You Have to Sell Your House in a Divorce? » Divorce and Your Debt » Do You Have to Sell Your House in a Divorce?



A house is a significant purchase and figuring out how to fairly split valuable equity can raise a lot of tough questions, especially if a divorce isn’t an amicable one. That’s why most couples assume that selling a home is the best option. However, there are multiple factors to be considered before listing a house for sale as part of a legal separation. Here are some questions to consider if you are trying to decide if you should sell your home as part of a divorce.

Question #1: Was the House Purchased Before the Marriage?

In most states, if a home was purchased during the marriage it’s considered a marital asset and therefore must be divided equally. Determining ownership becomes more complicated if a home was purchased by one person prior to the marriage.

Unless the terms of ownership were addressed in a prenuptial agreement, both spouses may have a claim on the home, particularly if both contributed to mortgage payments, utilities, and other recurring expenses. If there’s any question of ownership, a real estate attorney can help sort out the details.

Question #2: What Other Assets Are Involved?

If you have other financially significant assets, it may not be necessary for a divorcing couple to sell their home. Instead, one ex can concede other assets, so that one spouse keeps ownership of the home and the other receives an equitable balance in the form of other shared assets like vehicles, stocks, bonds, and bank accounts.

Question #3: Is it a Good Time to Sell a Home?

Selling the marital home shouldn’t just be determined by personal circumstances. Always look at the market and the terms of your mortgage to decide if it’s a good time to sell. A real estate agent can provide an estimate of how much your house may sell for. If it looks like you may sell your home for a loss, it may make more sense financially to wait until the market is more favorable for sellers. Likewise, selling your house now for a profit would benefit you and your ex if the market is hot.

Market aside, in most cases it’s recommended to hold off on selling a home if it was purchased within the past two years. During these early years, a large portion of monthly payments goes toward paying interest, not principal, so you won’t have much equity. Unless you have been making additional payments directly toward the principal, you may owe more on your home than you agreed, leaving you and your spouse owing money rather than receiving any.

Question #4: Would Your Family Benefit From Co-Owning After the Divorce?

Some divorcing couples decide not to sell their home and maintain joint ownership. If both parties see it as a financial investment they may decide to keep it as an income property, dividing the responsibilities and income earned. In this approach, it’s important to lay out the terms with a legal agreement.

Other couples sometimes choose to jointly keep a home if they share custody of the children. Even in the most courteous of situations, divorces can be traumatic for a family. A co-parenting couple keeping the family home until all children are grown can provide stability during an otherwise tumultuous situation. In this arrangement, the couple may decide to take turns living in the home or one person will retain primary residence while the other buys another home.

An Alternative to Selling a Home in a Divorce

If answering the questions above has made you realize that selling your home isn’t an optimal decision for you or your ex-spouse, there is another way to handle shared property during a divorce equitably: buying out the other spouse. This can be a great alternative if one spouse has a strong emotional attachment to the house, or if the location is convenient to their job or their children’s school.

In a buyout, the most straightforward approach is for the purchasing spouse to pay half the home’s market value to the other person. The purchaser must have enough cash on hand to pay off the other (or the ability to secure a new loan to do so) and keep the mortgage payments on their income alone.

Assets aren’t all that divorcing couples may have to split

Divorcing couples may also have to contend with shared debt, depending on which state they live in. That plus the legal costs can leave ex-spouses needing to rebuild their finances. Learn more about dealing with divorce and debt and what to expect. Have a pressing question? Contact a debt relief expert today!

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