Getting A Divorce And Selling A House: A Guide

The family home is a shared – and often the biggest – asset in a marriage. In some situations, one spouse may get to keep the house, but what happens when you’re getting a divorce and selling a house?

While some situations can end in an amicable agreement, others can be messy. Here’s what you can expect when you sell a house during the divorce process.

What Are The Options For A House During A Divorce?

Most couples going through a divorce have options when deciding who gets to keep the home or how they go about selling the home.

• Rather than either party getting the house, it’s sold immediately. Any equity earned is split. Courts will often seek to equally divide the equity in the marital home through a sale, but it may not be the first choice if there are children involved or if one spouse wishes to keep the property. If you still owe money after the sale of the house, then the debt is divided.
  
• The divorcing couple agrees to a co-owning arrangement where one spouse gets to keep the property for a specified amount of time, such as until the youngest child turns 18. In this sort of arrangement, both parties co-own the property and are still financially tied to one another. Any late payments on the mortgage will affect both spouses. Also, if you haven’t lived in the home as a primary residence for at least 2 of the previous 5 years, you won’t be able to claim the Home Sale Tax Exclusion when the home is sold.
  
• One spouse buys the other out and keeps the home. This is an option if one spouse doesn’t want to sell and a buyout may be for about half of the home's market value. This depends on income, financial contribution to the property and the home's earning potential. However, the spouse that keeps the house in a divorce settlement must have enough saved cash and can afford mortgage payments on a single income.
  
• Both parties agree to rent out the property and act as co-landlords. This is a mutually beneficial arrangement, but both parties must be in good standing with one another.
  
• A quitclaim deed may be used if one spouse wants to continue living on a jointly-owned property. A quitclaim deed is a legal document that transfers all ownership rights to real estate to one party without a complicated closing process.

Pros And Cons Of Co-Owning A Home After A Divorce

Co-owning a home after a divorce isn’t ideal for everyone, and there are advantages and disadvantages to this situation for those who make it work.

Is Selling A House During A Divorce A Good Idea?

There’s no requirement for selling a house during a divorce, but there are several reasons why it may be a good idea.

A single income may be insufficient to afford the mortgage and other associated home expenses. As a rule of thumb, no more than 28% of your pretax gross income should go toward your monthly mortgage payment. For example, if you make $8,000 per month, multiply that amount by 0.28 to get $2,240. Using this concept, your monthly mortgage payments – plus principal, interest, property taxes and insurance – should be no more than $2,240.

Selling can also allow both parties to split acquired equity, which can be used toward a new house during divorce. After the home sale, both parties can find closure and move on emotionally.

If you or your ex-spouse decide to keep the home, one of you may need to buy out the other and refinance to put the mortgage under a single name. However, refinancing isn’t always required. The lender may allow the partner keeping the house to assume the mortgage, relieving the other from all obligations.

Options For Selling Real Estate Vary By State

State laws impact how real estate is sold during a divorce. In community property states, divorcing couples are legally required to split all marital property, including financial assets and debts. This means that if you bought a house during the marriage, one partner must either buy out the other or the house must be sold and any equity is split equally.

There are instances when a property is considered individual property. Property acquired before the marriage or inherited by one spouse before or during the marriage isn't considered community property. A prenuptial agreement, which is a contract between two people that lists how debts and assets will be handled should the couple divorce, may overrule community property laws assuming the agreement is valid.

On the other hand, most states are equitable distribution states, which means that the court considers an individual's assets to be their own personal property unless shared by the couple. Equitable distribution is considered “fair” over being equal.

Consult a divorce attorney for more information on family law that applies in your state.

How To Sell A Home During A Divorce

Selling a home during a divorce is similar to selling a home any other time, but there should be an agreement on who gets what throughout the process. A written and signed agreement between spouses – often called a stipulation – can make selling a home during a divorce easier. The stipulation should cover setting a price, choosing a seller’s agent, accepting an offer, how proceeds and/or liabilities from the sale will be divided, who will live in the house during the selling process and other details that a legal professional can discuss in-depth.

The first step to selling a home amidst a divorce is to perform necessary maintenance to boost the home's curb appeal and decide how to split the costs. Ensuring the home is prepared inside and out before listing it on the market could help it sell faster and for more money. You should also get an appraisal on the property to determine the home's fair market value. Then, you and your spouse can decide how the proceeds will be divided after the sale.

Select a real estate agent, who may also be a REALTOR^®, to help you navigate the home selling process. There are even real estate divorce specialists who understand the challenges of divorce and have a deep understanding of the legal and financial complexities involved in getting a divorce and selling a house.

Now it’s time to list the home, review offers and accept the best one. Once an offer is accepted and the home is sold, proceeds must be divided according to any previous agreements.

What To Consider About Selling A Home Before Getting A Divorce

Before a divorce is finalized, it's essential to consider tax implications, if any. If there's a loss from the home sale, it can't be deducted from your income. However, if you have a capital gain from its sale, you may qualify for an exclusion of up to $250,000 of that gain from your income. In addition, if the sale occurs before the year the divorce is final, you could report the sale on a joint return and exclude up to $500,000.

This only applies to your principal residence, so if you haven’t lived in the home for at least 2 out of the last 5 years, then you’ll be facing full capital gains tax liability on any appreciation.

Another consideration is if the divorcing couple cannot reach any sort of agreement on how to divide the property, the court may order the sale of the home. This is called a forced sale or partition sale. When the court forces the sale of the home, how the proceeds are split depends on whether the sale took place in a community property state or an equitable distribution state. The court may also take over if there are additional disagreements during the home sale.

FAQs: Selling A House During A Divorce

Here are the most frequently asked questions when selling a house during a divorce.

Should I sell my home before a divorce?

In the best-case scenario, a divorcing couple can sell the home before divorce as if it were a typical sale. This can help to avoid any delays in the divorce proceedings.

Can a court order us to sell our home?

Yes, a court can issue a court order called a forced sale or partition sale. A judge may issue a forced sale if one party is not able to buy the other party’s interest or if the couple cannot agree on how to divide the property.

Is it better to sell a house before or after divorce?

Once you agree to separate and sell the home, you should plan to put the house up for sale as quickly as possible. By putting the home on the market early, you can avoid any frustration by having the courts get involved.

How do I calculate house buyout in a divorce?

Take the appraised value and subtract the mortgage obligation to get total equity. Divide this number to get the net equity for each spouse.

How do I sell my house if one partner refuses?

If you cannot come to some sort of compromise, the courts may have to get involved. You can get a court order to sell a co-owned property if there’s a reason to sell, like a divorce.

Can my spouse force me to sell my house in a divorce?

Yes, a court order can force the sale of the home. This often happens when one spouse cannot buy out the other or if there are disagreements regarding the sale of the home.

The Bottom Line

Getting a divorce and selling a house can quickly get complicated. Financial, legal or personal reasons often get in the way of a smooth sale, and in certain circumstances, a court may have to step in and award the home to one party or order the sale of the home. Seeking professional advice from a divorce attorney can help you navigate the legal and financial aspects of the process. You can also lean on a local real estate agent for help selling your home during or after a divorce.