In my article Marital Home Options, I gave the three main options for what you can do with the marital home in a divorce:
- Sell it and split the proceeds.
- One spouse “buys out” the other.
- Continue to own it jointly.
Factors to Consider
What’s best for you may depend a number of factors, including:
- Market value of the home.
- Current state of the real estate market.
- How much equity is in the home?
- Is the home entirely community property?
- Do either of you want to keep the home?
- Is it in your best financial interest to keep it?
- What do each of you see / desire as your likely / optimum individual living arrangements going forward?
- Are there other assets that could be used in a buy-out?
- Whose name(s) the mortgage is in.
- Can the spouse wanting to receive the house in a buy-out refinance the mortgage in their own name?
- Age(s) of your children.
- Do you get along well enough for continued joint ownership to be workable?
- What would be the Capital Gains Tax on a present or future sale?
What’s the value of the home?
What’s the current market value according to a local realtor or an appraiser? Online values such as Zillow give only a rough guide.
When assessing market value, what’s the state of the real estate market? Are prices going up or down? How quickly? Is it a seller’s market or a buyer’s market? What’s the likely longer term price trend?
What’s the outstanding debt on the home? And, therefore, what’s the equity? Is the equity all community property or is some of it one spouse’s separate property? If the latter, what is the separate property value?
Should you keep it?
You may prefer to keep the home. But it’s good to think about why. Is it an aversion to change? Is it an emotional attachment? Will the home have a lot more room (and rooms) than you need?
Sometimes keeping the home via a buyout means you’ll be home rich but cash poor. Is it wise to tie up a large amount of your net worth in one, non-liquid asset? What assets will you have to give up to keep the home?
Will you have the cash-flow to pay the mortgage and other home-ownership costs? Might you need to rent out a bedroom?
If you don’t keep it, where would you live and what would this cost?
What about the mortgage?
Keeping the home nearly always implies having a mortgage in your name only. This normally will require a refinance. This is because only rarely will a lender remove a borrower (your spouse) from the existing mortgage. Can you qualify for a refinance loan in your name only?
Continued joint ownership?
Sometimes, especially when their children are in their mid to late teenage years, parents contemplate keeping the home until say the children finish high school. How important would this be to the well-being of the children?
If this implies continuing to own the home jointly and selling it later, do you and your spouse get along well enough to do this? What arrangements would you agree upon for this continued joint ownership?
Capital Gains Tax
If you sell the home now or later, how much capital gains tax would have to be paid and who would pay it?