By Divorce.com staff
Updated Aug 28, 2023
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One of the most challenging issues accompanying any divorce is deciding how to divide assets and the family house. Numerous intricate legalities, such as state property division laws, the presence of minor children, and other factors, complicate it even further.
If you’re considering getting a divorce or going through one, this article will help you learn how to split a house in a divorce by giving you helpful information about the division process.
Read on to learn how to navigate the complexities of property division in a divorce and ensure your rights are well protected.
- Principal options for splitting a house in a divorce include buying out your spouse’s share, selling the home and splitting the proceeds, or joint ownership.
- Buying out the other spouse’s share involves compensation through payments, giving up other assets, or adjusting alimony or retirement benefits.
- Staying in the same house benefits minor children by reducing the stress of moving out and adjusting to a new neighborhood.
- Getting the house evaluated early in the divorce process can ensure a fair agreement and reasonable expectations of what should happen with it during division.
- Valuing the house in a divorce can be done through fair, professional appraisals, comparative market analysis, and online tools.
How Do You Split a House in a Divorce?
Divorcing couples have several options to divide their house. But before you can choose one approach over the other, you must determine whether any of you want to continue residing in the family house.
If neither spouse is interested in the residence, the division process will proceed more smoothly.
Here are three options to divide your house in a divorce:
- Buying out the other spouse’s share
- Selling the house and splitting the proceeds
- Co-owning the house and selling it later
Buying Out The Other Spouse’s Share
Since your house can’t be physically divided in most cases, you can buy out the other spouse’s share. It can be especially beneficial for minor children involved in divorce because it provides stability. Family law judges and most parents understand that keeping things consistent for small children is vital.
A typical arrangement is when a primary custodial parent buys the other parent’s part of the family residence, says Brette Sember B.A., J.D. This way, the children don’t have to move out and adjust to new living conditions, avoiding the depression of moving out.
A buyout can also be a better option if one spouse has enough money to keep the house and wants to avoid selling it in a bad market or hopes it will increase in value. You can add the buyout to the divorce settlement and decide how quickly you will do it.
The buyout can be done using the following methods:
- The other spouse receives specific assets in exchange for their share’s value.
- They get periodic payments until the sum is completely paid up.
- The buying spouse gives up receiving alimony (if it was initially planned) or part of retirement payments.
However, you risk facing some complications using this method. For instance, you might miss out on future house value if you sell your share too quickly.
On the other hand, you can face financial challenges if you’re the buyer and don’t have enough money to purchase your spouse’s share.
Selling The House And Splitting The Proceeds
If neither spouse plans to live in the family house after divorce, you can sell it and divide the money. Consider hiring a real estate agent. It will save time and prevent adding more stress to the divorce process.
Selling the house has several implications to consider. First, you must agree on a real estate agent. For instance, you can use the one you worked with when buying the house. Another essential consideration is making the required repairs before selling.
Both spouses can share the price of the renovations or have another agreement that they both think is fair.
Additionally, you must pay off the remaining mortgage, liens, and any loans you took on the house. If you don’t have the money to refinance the mortgage, you can still sell the house if you can settle the balance using the sale profits.
“It’s not uncommon for divorcing couples to have unpaid mortgages on their houses when they proceed to sell the real estate properties as part of a divorce settlement,” says Laura Wasser, a Los Angeles-based divorce attorney. “A mortgage won’t become a huge problem when selling a home if there is sufficient equity to pay off the loan when the sale is finalized fully.”
Alternatively, you can sell your house, split the proceeds, and keep renting the home to which you and your children feel attached. A few advantages of this approach are the more straightforward selling process and cashing out while living in the same place without the need to pay property taxes, insurance, and maintenance fees.
Check out Sell2Rent.com, which specializes in managing rental properties using this approach.
Co-Owning The House And Selling It Later
Co-owning the home is a complicated option that suits two scenarios: waiting for a better housing market or providing stability for children by taking turns living in the house. However, it keeps you financially connected to the person from which you want to separate.
As part of this approach, you can list the house for rent until you can sell it. It is a wise option if your house has negative equity.
What is equity? Home equity is the value that remains in a property after subtracting the outstanding mortgage balance from its overall worth. For instance, if you owe $100,000 in mortgage, and the current market price is $150,000, the equity is $50,000.
If you owe more in mortgage payments than the house’s current market value, one option is to collect rent from tenants and pay off the mortgage. By holding onto the property as a rental, it gives the property time to increase in value, which means you can sell your house later for a better price.
What Are The Tax Consequences of Dividing a House in a Divorce?
You may pay capital gains tax, depending on what you do with your house. Transfers of property between divorcing spouses are usually not taxed (U.S. Code, Title 26, §1041). If you decide to divide it using one of the above methods, expect the following scenarios:
- If you sell the house with your spouse, you can exclude $250,000 of gain each from taxable income if it’s your primary home (not a vacation one) and you lived there for at least two years before selling (Publication 523, IRS). You’ll pay the capital gains tax if you gain more than $500,000 in total with your spouse.
- You will pay capital gains tax after selling the house, even if you bought out your spouse’s share. However, you can still exclude $250,000 of gain if you lived there for two years before selling.
- If you co-own the house but don’t live in it, you might lose the exclusion of $250,000 from taxes when selling the home. However, if you have a written settlement agreement that says one spouse stays in the place while the other owns a part, it counts as an incident to divorce. Thus, the spouse who doesn’t live in the home can get the exclusion from the capital gains tax.
Tax consequences are an intricate matter, so it’s best to consult a certified financial planner to stay on the safe side.
Options for Valuing Your House in a Divorce
Establishing the property’s value before discussing its division is vital for divorcing couples, as the house’s value plays a significant part in determining the potential outcomes.
Here are the most common methods to evaluate the house in a divorce:
- Professional Appraisal
- Comparative Market Analysis (CMA)
- Property Tax Assessment
- FHFA House Price Index Calculator
- Online Estimation
Appraisers use established methods to compare home sales and determine the value of a house. By examining recent sales in the neighborhood, an appraiser can assess your home’s worth and provide a fair market value.
Appraisals use three methods to determine the house’s value: sales comparison approach, cost approach, and income capitalization approach. The professional you hire will likely use the sales comparison method, as it’s ideal for single-family homes.
If you disagree on the obtained sum with your spouse, you can get two appraisals to ensure a fair process.
Comparative Market Analysis (CMA)
You can use this method yourself or hire a local real estate agent. It is based on looking at the prices of houses in your area. After researching the local area, consider the overall state of the country’s housing market and analyze the average national house prices.
For example, use the Census.gov reports on new residential sales. By examining this data, you can understand the potential selling price.
If you decide to consult a real estate agent, they may offer a CMA at a minimal or no cost, especially if they hope to be hired as your selling agent.
Property Tax Assessment
You can look at the assessed value of your house that the local government calculated for your property tax purposes. This method includes the property’s overall condition, local property values, square footage, etc.
Due to infrequent updates, the assessed value of your home is less precise compared to other evaluation methods. For instance, some counties and tax agencies update the property value once every one to three years.
FHFA House Price Index Calculator
The FHFA House Price Index Calculator is a tool the Federal Housing Finance Agency (FHFA) provides that helps you estimate how home prices have changed over time. It uses average home price data from across the United States.
With this calculator, you can enter the state, year of purchase, and price you paid for the house to estimate its current value. It will help you understand how the property’s value has changed over the selected period and see potential future price trends.
You can use online tools called estimators to get a rough idea of your house’s worth on the market. These tools use algorithms and information about your home, like its location, recent sales in the area, and property features, to give you an estimated value.
For this reason, online tools cannot be 100% accurate since they don’t account for unique features or renovations that can impact a house’s value. Additionally, these online estimators don’t fully capture market conditions and other local factors. But it’s a good starting point to approximately evaluate your house should you sell it.
Understanding how to split a house in a divorce is crucial if you plan for a particular outcome. So is exploring all available options and carefully considering the potential implications. Whether you buy out your spouse, sell the house, or co-own it, think through each method and foresee different future scenarios.
With the proper knowledge of state division laws and various options, you can divide a house more confidently, ensuring a fair resolution in your divorce case.
Does a Prenup or Postnup Affect Who Gets The House?
In particular, if you agreed to sell the house and split the proceeds in your prenup, that’s how your property division will likely end. If you forgot to add a provision concerning the house division and can’t agree on it during a divorce, you must go to trial and let the judge decide.
Can I Keep The House if I Owned It Before The Marriage?
You can keep the house if you owned it before marriage. Generally, the house remains separate property if it’s titled in one spouse’s name (not both), neither spouse made improvements to it, or paid the mortgage using marital funds.
However, your state property laws may differ. For instance, in community property states, you might require more evidence than just a sole title on your house. In the equitable distribution states, the same evidence would be enough to prove that it’s your separate property.
Can I Keep The House if It is a Gift?
Yes, you can keep the house if it was a gift to you and not to both of you, and it hasn’t commingled with marital assets. However, the possibility of keeping a house after divorce depends on various factors.
For instance, if the gifted house was renovated during the marriage, the non-owner spouse can claim compensation. You must learn property division laws specific to your state to understand your rights and possibilities.
Can I Keep The House If I Inherited It During The Marriage?
You can keep the house if you inherited it during the marriage and if it remains your separate property. That is, neither you nor your spouse did anything to increase its value.
However, if you used marital funds for mortgage payments, renovations, or any other repairs, your spouse may claim a fair share of the increase in the property’s value during the marriage.