Divorce and the Family Home: Should you keep it or sell it?

Question: How do you eat an elephant?

Answer: One bite at a time.

If you’re reading this, chances are you’re finding yourself in?a?vast ocean called Divorce. Packed beyond capacity with emotion and what feels like an endless list of decisions to be made, navigating the fate of the family home is certainly one of the more complex challenges individuals facing divorce will take on.?

In this post, we’ll revisit some key concepts you may already know – yet may need to be reminded of – along with some insights you might not have even known to consider.?

Emotional Considerations

Let’s start with the obvious. Emotional attachment to the family home makes the decision to sell or keep difficult.

For many, the home represents stability, especially for children during a tumultuous time.

However, clinging to the home for emotional reasons can, and often does, easily cloud financial judgment. The near impossibility of removing emotion from this decision is one of many reasons that working with a CDFA can be so helpful and important.?

Financial Realities

Have you ever assessed the true cost of maintaining the home? Consider every aspect, including mortgage payments, property taxes, utilities, and upkeep.

Can either spouse realistically afford to maintain the home on a single income? While it feels impossible, the reality is that it’s actually IMPERATIVE to not allow your emotion a voice in answering this particular question. Do what you need to, in this moment, to suspend emotion and become laser focused on reality. Utilize FACTS ONLY here, and thought-out facts at that. Your future self will thank you for not landing in an unaffordable, untenable situation because of an income you only envisioned or hoped for, that was rooted in anger instead of reality.?

Post-divorce, both parties may have different financial circumstances, making home ownership less feasible.

Impact on Children

Once more, I’ll highlight what’s evident: Keeping the family home can provide continuity for children, helping them adjust to the divorce.?Moving can be disruptive. Let’s not forget what’s?also?true though: moving can sometimes offer a fresh start helping children adapt to new realities. Children are resilient – often far more so than they get credit for.

While staying close to schools, friends, and community resources can provide stability, not everyone has the luxury of maintaining these connections. Be realistic about what’s feasible for your situation and prioritize the options that best meet your family’s overall needs. ??

Selling the Home

Selling the home can provide both spouses with liquidity and a clean break, avoiding disputes over ongoing costs. Sounds easy, right? (You’re right – it doesn’t.)

The real estate market will certainly influence the timing of this decision. It’s important to carefully evaluate the current real estate market, whether it’s strong or weak.

Understanding market conditions will help you make a well-informed decision about the potential proceeds from a sale, ensuring that you have a clear picture of the financial resources you’ll be working with post-divorce.?

Don’t skip over weighing the costs of selling as well, such as realtor fees, closing costs, and potential capital gains taxes.

Timing the Decision

Some couples decide to keep the home temporarily, selling it later when the market improves or when children have grown older.

This delay gives more time to financially adjust, but both parties must agree on the terms of this arrangement.

Joint Ownership Post-Divorce

In some cases, although certainly not as common, couples opt to co-own the home post-divorce, especially if children are involved.

While this can preserve stability, it requires clear agreements about responsibilities, expenses, and the timeline for eventual sale.

Joint ownership can lead to future disputes and complications, so it’s crucial to establish clear terms and have these terms included in the divorce agreement.?

Buying Out Your Spouse

In this option, one spouse buys out the other’s share of the home, allowing one person to remain while compensating the other.

This requires a fair appraisal and agreement on the home’s value, which can be complex during divorce negotiations. Not undoable, not unheard of, but complex.?

In choosing this road, make sure you either have the funds available to accomplish this, or can qualify for a new mortgage independently?before?pursuing this option.

Tax Implications

Consider the tax consequences of selling the home, especially regarding capital gains and mortgage interest deductions. Are you working with a CPA? If not, now’s the time. When transferring ownership, the spouse who gives up the home may lose their eligibility for certain tax exemptions on capital gains when the house is eventually sold. For the spouse keeping the house, they may qualify for a capital gains tax exclusion if they sell the home in the future, but the rules depend on how long they’ve lived there and how much profit they make.

Be aware of the implications of transferring the home title as part of the divorce settlement. Transferring the title doesn’t automatically release the transferring spouse from the mortgage obligation. If both spouses were on the mortgage, the spouse giving up the home may, and likely will, still be legally liable for the loan unless the mortgage is refinanced in only the name of the remaining spouse. Refinancing can sometimes be difficult, especially if the spouse staying in the home has insufficient income or credit to qualify for a new loan independently.?

As a Certified Divorce Financial Analyst (CDFA) Financial Advisor, I often see clients making important decisions based on an idealized future. As an example, it’s easy to envision keeping the home without having truly taken into consideration your actual and realistic financial picture. ?

Typically, most clients know they are doing this on some level, yet still don’t acknowledge it, as the thought can be so daunting. Clarifying your financial picture will go a long way to easing that sense of overwhelm. There’s no need to go it alone! We’re here to help.

This article is intended for informational purposes only and does not constitute an offer, solicitation, or recommendation to buy or sell any securities, investment products, or investment services. This article is also not intended to serve as legal advice. The views and opinions expressed are solely those of the author and do not necessarily reflect the official policy or position of their firm. Readers should not rely solely on the information provided in this article for making investment decisions. They should consult with a financial advisor or conduct their own research before making any investment decisions.?