There’s no point in sugarcoating it: deciding what to do with a home during a divorce can quickly become stressful and complex. A home is not only one of the biggest financial assets that have to be divided between you and your spouse in a divorce but an emotional asset as well: one that you both have most likely spent part of your life in and worked hard to pay for over the years.
Divorce is complicated enough; deciding what to do with the home on top of the divorce can be a messy process if you’re unsure how to proceed. Here we’ll break down your best options in this scenario and some ways to begin the process of selling a home in a divorce.
What happens to a home in a divorce?
There are several different ways a home can be handled in a divorce. Legally, a house is considered a marital asset, which means that its value will be divided between the divorcing parties depending on what state the divorce takes place in and how each person contributed financially to the mortgage. If you have children, considering the home as a way to maintain stability for them can also impact what happens to the home.
There are three likely possible scenarios for what happens to a home in a divorce. The first is that the house is sold in the divorce and that the proceeds go to both parties. The second option is that one spouse buys out the mortgage from the other. The third option is that a couple that has one or more children commits to contributing to the mortgage together until the youngest child turns eighteen (or until another date laid out in a contract) to provide stability for their family.
Option 1: Selling the Home
Even when each spouse has worked hard to pay financially for a home, many couples decide to sell the home as a part of their divorce. Because divorce can be both financially and emotionally draining, selling can offer both parties a monetary reprieve and a chance to start afresh.
Tax Implications of Selling a Home in a Divorce
One of the biggest considerations when selling a home as part of a divorce are the tax ramifications. Married couples who file returns jointly can exclude up to $500,000 in profit from the sale on your tax returns. If the house is sold when it is under only one name, on the other hand, only $250,000 can be excluded on the tax return. Couples who are getting a divorce can still file jointly for the $500,000 exclusion that same year, which often provides both parties an incentive to sell and divide up the profit instead of creating a deal where one buys out the other.
Option 2: Buying out the mortgage
Another option that some couples may consider in a divorce is the potential for one spouse to buy out the mortgage from the other. This might happen if one spouse is more invested in the property than the other or plans to raise children in the home by themselves. Of course, this only works if the spouse can qualify financially to afford the home and will be able to take over the mortgage payments on their own single income. Some couples set up a payment plan or other considerations for how one will pay the other back over time, but unless the divorce is amicable, this can get tricky and should be determined through a divorce attorney.
Option 3: Co-owning the home
If you have children, you’re probably already aware of the emotional and mental toll that divorce takes on each family member. To provide as stable of an environment as possible for your children, you and your spouse may decide to both continue making mortgage payments on the home.
This option can quickly become complicated, especially because it requires that both parties will be able to meet their financial obligations to each other even after the divorce. If one spouse can’t afford their monthly payments or falls behind, the other will see their own credit score and finances damaged, so it’s important to lay out all of the details clearly in a legally binding contract.
How to Sell a Home in a Divorce
If you and your spouse decide to sell your home as part of a divorce, the process will work differently than it would if you were selling together. There are a few important steps to keep in mind:
Providing Documentation
You can get ahead of some of the complexities of selling a home in a divorce by preparing to go over every last detail of you and your spouse’s finances with a divorce attorney. Depending on your situation, you and your spouse will probably receive percentages of sale profits based on what you contributed financially to the mortgage and to your shared lifestyle. Each state may determine how much each spouse gets differently depending on their financial background.
The sooner and more willing you are to provide documentation of your finances, the better (and this isn’t just for the sale of the home, but for the division of other marital assets as well). Prepare to pull bank statements and records of large purchases in the past for you and your attorney to discuss.
Viewing the home as a marital asset
As we stated above, a home is considered a marital asset by the court and therefore its value has to be divided up or agreed upon in some way during a divorce. Each individual has a different relationship with their home, but our professional recommendation is that each of our clients remembers the benefits that come with selling the home and the importance of viewing it as an objective asset. This mindset can make it easier to come to decisions on how to divide up proceeds from the property and continue as smoothly as possible through the process.
Working with a Divorce Realtor
Divorce realtors are not only experienced with selling homes but are familiar with how the process fits in with divorce proceedings. A good real estate agent who has worked with homes being sold in a divorce should be able to do two things: they should know how the sale fits in with the divorce and should be able to sell the home quickly at the best possible price in a way that fits in with what each spouse needs.
As we’ve covered, divorce can be tricky. A realtor who has worked with divorcing clients can anticipate the complications of the process and will know the importance of being patient and of working with both spouses equally to represent both of their best interests.
Looking to sell your home in Chicago?
Our team has been selling homes and condos in Chicago for over twelve years. Over that time, we have had the privilege of working with clients to sell quickly and find a great buyer for them. Sometimes, that sale is part of a divorce. While this can complicate the process, we pride ourselves on working efficiently and graciously for both parties so that each spouse can trust that the sale of their home is in the best hands.
If you’re looking to sell your Chicago home today, reach out to us or head over to our blog to read more about selling homes in Chicago.