Getting a divorce and selling a home can be stressful events on their own. When you need to navigate both at the same time, it’s easy to feel overwhelmed.
The good news is that this process can be made easier after making some key decisions early on. In this guide, we’ll answer some of the biggest questions you may have so you can take the right course of action for you and your family.
One of the most complex matters during a divorce is simply deciding when, or if, the home should be sold. There are several financial and emotional considerations woven into the decision that can be tough to balance. On top of that, each spouse may have strong opinions that don’t always align. Here are answers to some of the most common questions people have when thinking about the best way to proceed.
Knowledge of who owns what is crucial during a divorce. That’s why the first thing to determine is if the home is marital property (meaning it was acquired during the marriage and therefore is typically owned by both spouses) or separate property (meaning it only belongs to one spouse).
Separate property could be something owned before the marriage or acquired in one spouse’s name such as a gift, inheritance or something obtained with the intention of keeping it separate. Laws vary by state, so if you’re unsure about the ownership of your residence it’s best to consult with an attorney to make sure your home is marital property.
There are often financial benefits to selling a home before a divorce is finalized. Depending on your situation, however, it might make sense to wait or not sell the home at all. There’s no right or wrong answer, so it’s important to explore both options and figure out what’s best for you.
Potential tax savings: Selling an investment often means paying a capital gains tax, which can be as much as 20% of your total profit. Moreover, if you happen to have a rental property that you’ve been claiming depreciation on in order to lower your income, you could be taxed at a higher rate. However, when you sell your primary residence you can receive a capital gains tax exemption of $250,000 per person. For a married couple, that exemption amounts to $500,000. Depending on the value of your home, you might need to sell before a divorce is finalized to get the full exemption and maximize your profits. The best thing to do is speak with a tax professional.
Money to move on: Selling the home is typically the best way for each spouse to raise the funds needed for a new home. If you’re looking for a clean break and a fresh start, getting half of the profits of your home sale can help you achieve both goals.
Escaping the mortgage: Many homes are purchased with a joint mortgage because one spouse generally can’t afford the payments alone. In this situation, there’s often little choice but to sell the home unless both parties agree to share ownership after the divorce is complete.
Rising home value: Most homes increase in value over time. If you live in a neighborhood that’s trending up quickly, it might be wise to hold off so you can sell for more. Just be sure to consult with an attorney and/or financial advisor if this is your reason for keeping the home. You might need to pay additional taxes if you sell after the divorce is final.
A spouse wants to stay: Whether it’s for the sake of children, affection for the home or any other number of reasons, it’s common for at least one spouse to want to keep the family home. Going this route typically means the remaining spouse will need to qualify for the mortgage alone and buy out the other spouse, or both parties will need to agree to share ownership.
This isn’t uncommon. The simplest way to resolve this issue is for the remaining spouse to buy out the other. If insufficient funds are an issue, the spouse who wants to keep the home will often refinance the mortgage and use the equity for the buyout. In situations where an agreement can’t be reached, a family law judge can be asked to compel the sale.
However, there usually needs to be a very good reason to compel a sale such as the imminent threat of foreclosure. If there’s likely to be a custody battle, the house may be sold to help cover attorneys’ fees.
It may be the case that one person wants to keep the house and the other person is perfectly happy to give it to them, assuming they can agree on financial terms. The problem is if there’s a mortgage. What you could afford as a couple you may not be able to qualify to refinance on a single income. In that case, you may have to sell the house or find a way to share ownership.
It’s not unusual for both spouses to continue owning the marital home after a divorce, especially when children are involved or when one spouse can’t afford the mortgage payments alone.
Divorced couples typically become “tenants in common.” This means each spouse owns half of the home as opposed to each spouse having 100% interest in the home while married. Sometimes only one spouse will live in the home. In other situations, which typically involve children, spouses will take turns staying in the home.
There are risks involved with a divorced couple owning the home, even beyond the potential tension that can exist between a former couple. If both spouses agree to pay toward the mortgage, either party making a late payment will harm the other’s credit score.
You’ll also need to make plans to avoid potential disagreements or manage unexpected events. For example, it’s recommended that you have a settlement agreement that dictates when the home can be sold, what happens if a spouse dies and how to proceed if a spouse goes bankrupt.
In most states, the division of proceeds is usually split down the middle. Ultimately, this will be decided by the terms of the divorce. Sometimes one spouse will receive more if they invested more in the home or handled more of the mortgage payments during divorce proceedings.
Choosing the right real estate agent to sell a home is always important. When there are two homeowners who don’t always see eye to eye, this choice is even more significant. There will be many decisions that need to be made throughout the home selling process, and having an agent who can explain things calmly, clearly and without bias can make the process much easier.
A real estate agent must often serve as a mediator when selling a home during a divorce. Disagreements happen and emotions can run high, so finding an agent who is patient and skilled at communicating can ease a lot of stress.
Asking your attorney for a recommendation can be a good way to find a qualified agent for your situation. Do some research to make sure any potential agent has several years of experience selling homes during divorce. Look for an agent certified through organizations like the Divorce Real Estate Institute or programs like Professor Kelly Lise Murray, J.D.’s specialized training for brokers and agents.
Keep in mind that if the home is marital property, both you and your former spouse will need to sign the listing contract. This means you’ll need to agree on the agent who helps sell your home. If you can’t agree on an agent, each party’s attorney may need to negotiate how to proceed. It’s best to avoid this for several reasons, the main one being that many top agents will be reluctant to sign on when two spouses can’t even agree on who to hire.
The entire home sale process might be governed by an agreement that’s set out in the divorce in order to keep forward disagreements to a minimum. If you can agree on a process for hiring a qualified agent up front, it will help. For example, maybe one spouse will compile a list of qualified agents and the other spouse will make the final pick.
Make sure the agent understands your communication preferences. Will there be one spouse taking the lead, or should both spouses be informed at all times?
Selling a home means making several important decisions. When two people disagree and get stuck, referring to an unbiased expert can be a way to move forward. That’s where your agent comes in.
At the start of the home selling process, it’s a good idea to sit down with your agent and discuss matters that will require mutual agreement between you and your former spouse. Whether you consult your agent separately or meet as a group, answer the following questions at a minimum and consider trusting your agent’s expertise if you reach an impasse.
The goal is to set a competitive price that doesn’t leave money on the table. Your agent should be highly knowledgeable about your local market and how much similar homes in your neighborhood are selling for, so it’s wise to lean on that knowledge as you settle on the final number. As an alternative, you can choose to have a professional appraisal done in order to give you a starting point for the price.
It’s wise to establish the minimum amount you’ll accept for your home right from the start. This will help your agent negotiate with potential buyers as well as help you and your spouse avoid indecision or debates down the line.
If the home is on the market for a while, you may need to drop the price. It’s a good idea to agree in advance on how much the price will be dropped and when so you’re not having to go back and forth on these decisions as the process moves forward.
Your agent should advise you on what could raise your home’s value or help you sell quicker. It’s important to determine how much work will be done and who will handle the cost or put in the time to make it happen.
As you adjust your living arrangements and handle financial matters, there may be some urgency to sell within a set timeframe. Try to be transparent about your situation and communicate all time-related needs to your agent as soon as possible.
However, you should also develop a cohesive story. If people know you’re divorcing, potential buyers may decide that you really want to get rid of the house quickly. As a result, they might lowball their offer. You can say you’re downsizing or whatever you want – just make sure you stick to your story.
It’s tough to anticipate every issue that may come up, but there are some steps you can take early on in the selling process to avoid stressful situations down the road.
Your personal circumstances will be the most important factor to determine if one spouse should move out before a divorce is finalized. In some cases, a spouse will get a court order that provides exclusive rights for use of the property during the divorce. So long as both spouses’ names are on the mortgage and title, each will be entitled to their fair share of proceeds after selling the property.
In terms of getting the best offers for your home, it’s usually best if one spouse remains living there for a couple reasons. If both spouses move out, it’s more difficult to sell an empty house. Renting furnishings is an option, but it can get costly and will create yet another task to be sorted out. If both spouses stay, it can get complicated to schedule home tours for potential buyers due to conflicting schedules or disputes about how to show the home.
No two situations are identical. Local laws, housing markets, home values and even the season you sell in can affect how smooth your home sale is. At the same time, the dynamics of your relationship with your spouse, your family, your career and your finances also factor into the home selling process. While there isn’t a universal guidebook to navigate selling a home during a divorce, there are a few things most homeowners can do to make the process a little easier.
Before you sell the home, you’ll need to decide who gets what inside the home. These decisions can affect how much you get from the sale and how the selling process is handled. Consult with an attorney who can mediate the division of assets, advise you on getting a real estate agent and walk you through your local laws and best options.
Staging a home involves removing clutter and arranging furnishings to maximize the home’s appeal. Studies have found that staged homes often sell faster and for more money, so it’s worth asking your real estate agent for recommendations. Even implementing small changes can make a big difference, like adding a lamp to brighten a space or moving a couch away from a wall to make a room bigger. Staging also gives you a reason to remove unwanted items and pack up personal property like family photos.
Saying goodbye to a home is deeply personal – and even more so during a divorce – but it’s important to remember that selling the home is a financial transaction. Try to lean on your agent for advice and mediation between you and your spouse when emotions run high. You and your spouse are both likely to benefit from a sale that nets you the largest profit possible. Remaining calm and rational typically speeds up the process so you can start the next chapter of your life.
Going through a divorce and selling a home can make people feel like they’re suddenly on their own. The truth is, millions of people share many of the same struggles, and there are dedicated professionals who specialize in helping divorcing couples reach the best possible outcome. Do your best to seek out others who can relate to your situation or who can guide you through it. Once you reach the finish line, you should be ready to start the next chapter of your life with a clean slate.
