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Selling Your House During a Divorce? Consider These Three Things.

by | Dec 14, 2020 | Firm News |

The division of marital property is often times the most complex aspect of divorce, particularly if high-value assets are involved and the parties are unable to agree on how property should be divided. The family home is one such item of property that requires careful consideration.  In many divorces the marital home is the largest asset that the parties own.  It is important that the client and their attorney address all of the potential issues that may arise regarding the division of the marital home in the divorce agreement in order to protect the client’s rights.  

Before embarking on the sale of your home during divorce, speak with your divorce attorney who is there to help ensure that your financial interests are protected throughout the divorce process.  

1. Know the tax implications.

Specifically, understand how the capital gains tax could affect profits from the sale of your home. The current capital gains tax exclusion is $250,000 for an individual, $500,000 for a couple. That exclusion applies if you have lived in the house for two out of the last five years. If the value of your home has appreciated significantly, it’s important to be aware of how the profits could be taxed.

Also, it is particularly important to be mindful of the capital gains tax if you are buying out your spouse’s share in the property and the value appreciates significantly. You could be responsible for taxes on any gains above $250,000 if you ever decide to sell after buying the property from your spouse.

It is important that this potential tax implication is reviewed and considered by your divorce attorney, and it is also recommended that a tax professional also be consulted to determine the true affect these taxes will have on the total equity in the home.

Important to note: these tax issues can be accounted for in a carefully crafted and considered, forward-thinking divorce agreement

2. Consider the cost of getting the house ready for sale.

Almost every home requires some money to be spent to get it ready for the market. It’s important for you and your spouse to be on the same page about how to pay for any updates or maintenance. It is also important to be on the same page on what sorts of repairs or maintenance needs to be performed on the home, and what repairs and maintenance is not advisable as the costs will outweigh the benefits.  Unless such repair scope is anticipated to give the sellers a return on their investment or absolutely necessary to even market the home,  it may be advisable to forgo the repair.  Buyers have personal preferences and will want to make the house their own, so doing the bare necessities may be advisable.  A realtor is very important in this process as the realtor can advise the sellers on what should and what should not be done to the home to get it ready to sell.  You can also ask your real estate agent how the updates might affect your profits.

You do not want to forgo equity in the home on unnecessary repairs or expenses to list the house.  I regularly advise clients to consult with the realtor on staging the home, and conducting repairs and maintenance to get the house ready to list for sale.  The realtor usually knows the market and knows what buyers are looking for in the area much better than the sellers and a divorce attorney. Thus consulting with the professional  and considering  the advice of the realtor when making these decisions.  The attorney should seriously consider putting a protocol into the divorce agreement on how these decisions are made, and either consulting with or following the recommendations of the realtor is smart and can save a lot of arguing, delays and money during the sale process.”

The more you can anticipate about the sale and its effect on your financial situation, the better you can plan for life after divorce.

3. Remember the importance of timing.

As with any real estate sale, timing is important. However, divorce brings another set of factors that could affect the timing of the sale.

In many situations, it is preferable to sell the house before the divorce is finalized. That way, both spouses can have a clear idea of the costs that go into selling the home, and those expenses can be accounted for in the divorce settlement.

In other cases, non-financial concerns may take precedence. For example, the spouses may want to wait to sell the home until after their child starts a new school year, or a spouse may want to delay a sale of the house until the kids graduate from high school to permit them to continue in their current school.  If the parties decide to wait then they also need to address everyone’s rights to the home, how the house will be maintained, and how the expenses on the house will be paid until it is sold at a later date.

Some spouses even decide to wait until after the divorce is finalized to sell the home. While this plan may leave some major issues undetermined in the divorce settlement, the process of selling the home may actually go more smoothly if only one spouse is in the home and making decisions with regard to the sale.

Financial uncertainty post-divorce is a major concern for client, especially the less monied spouse.  This concern can be reduced when the parties know how much they will net from larger assets such as the sale of the marital home.  This knowledge can put the parties more at ease which may make them more amicable and more willing to compromise and resolve other issues in the divorce.  This is why it is important to address each and every issue related to the house sale in the divorce so that the parties’ rights are established as early as possible in the divorce process.

Again, it is always best to speak with your divorce attorney before finalizing any decisions that could affect  marital property division and your financial future. For more on these matters, please see our overview of the equitable distribution of marital property in New York.