The decision to keep or sell the family home during divorce can become an emotional power struggle and an ongoing source of conflicts and negotiations between a husband, wife and their mediator or attorneys during the long path through divorce.
Since divorce causes many disruptions to all the parts of a person’s life, it’s not surprising that most people want to stay in their current home for security, continuity and practical reasons and to keep their children’s lives as stable as possible during this challenging time.
Reaching a joint decision about whether to keep the family house or sell it is a huge decision that leads to emotional, financial and tax consequences so it’s wise to consider the overall situation and consult with any experts you may need who can provide you with objective advice about what the financial and tax consequences will be.
In some situations, there is no choice about whether to sell the home or not. During my own divorce, a family court judge I’d never seen issued a written order that we list our marital home for sale within 30 days just 3 months into our lengthy divorce because my husband’s income had decreased due to a lay-off and his insistence that he wanted to start a new business, rather than look for another job position.
I suddenly found myself having to find a rental home right away for myself, 3 kids and a big dog that was also within my children’s school district and on their bus routes. This move ended up costing me just as much in monthly rent payments as our much larger marital home payments had cost per month even though the rental home was much smaller.
If you are faced with the decision about whether to keep or sell the family home due to divorce, here are 5 questions to ask that can help you decide:
- What are your housing options where you live? Will the cost of the house payments be about the same, more or less than a similar place for rent when you figure in the tax deductions for mortgage loan interest? Are there rentals available where you live that meet your needs and are in the same school district? Can you afford the costs associated with moving and/or storing items if you move into a smaller home?
- Do you know what your house is worth in your current real estate market? Are you under water when it comes to equity or can you afford to pay off all of the mortgage loans on your home plus cover the costs of selling it and moving? After finding out how much you still owe on your home loans, consider consulting with some real estate agents to find out what some comparable homes are currently selling for near your home and hiring a real estate appraiser for some outside opinions to find out for sure.
- Can you really afford the house on your own when the divorce is over? Deliberating over this can truly be painful. No matter how much you may WANT to stay in the home, your financial situation will likely become much tighter following divorce. Do you know if you’ll be able to qualify on your own income to refinance the mortgage into your own name ? Rising real estate taxes, utility bills, home repairs, maintenance and landscaping can chip away at your new single person budget, making it harder to save for other things as you start your new life.
- Could you be better off taking other assets in exchange for your share of the family home? The tax man cometh and the tax man taketh away when it comes to selling or dividing equity in homes, retirement funds, stocks and other assets. If you decide to keep the house now and later sell it on your own, you could end up with a hefty capital gains tax bill depending on how much your home sells for at that later time. It’s smart to meet with a tax accountant or Certified Divorce Financial Analyst (CDFA) to figure out the various tax consequences that could result from selling or trading both assets and liabilities during divorce.
- Consider the many benefits of making a clean break by selling the marital home. There won’t be any worry about whether or not either person can qualify on their own income to refinance it into their own name. You can use your share of the profit from the home sale to prioritize your new financial goals. You won’t find yourself in an upsetting flashback in the kitchen one night, remembering that terrible fight you had right near the sink. There won’t be any reason to worry about your former spouse inviting his new love interest into the home you had previously shared together. Once you’re out from under the weighty constraints of that mortgage, you can downsize, re-size or move into a totally different place where you and only you now have the keys to unlock your new front door.
Keep or Sell the House during Divorce?
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