To some divorcing couples, dividing the house can be as emotionally painful as the divorce itself. One or both spouses may have a deep attachment to the house and think that the only thing that matters to them in the divorce process is keeping the house. At Hoffman Divorce Strategies, we work with our clients and their counsel to help them understand the financial pros and cons of keeping the house so they can determine what approach is really in their best interest.
As only one spouse can stay in the house, start planning for a move or buy out. Focusing on the fact that home is wherever the family lives and not a particular house, can help ease the transition for spouses and children. Many spouses have been surprised that children attach less to a house than being with their parents! As with all divorce decisions, flexibility and developing options can help keep the cost of the divorce down.
Work on your Options as early as possible
Many divorcing couples do not have enough extra money to buy another house so either the home will have to be sold and the proceeds divided, or one spouse will keep the home and buy out the other spouse’s interest. We strongly recommend contacting a realtor and mortgage lender as soon as possible. Current real estate market information and mortgage lending information can help resolve who will live where after the divorce. Also, getting an estimate of the current market rental of the family home is information often needed by counsel during the divorce.
One or both spouses will be moving. Patrice McCoy at Latter and Blum (https://www.facebook.com/pmccoy.lb and https://patricemccoy.latter-blum.com/) has these three important points for divorcing clients considering real estate sales or purchases:
- Choose a realtor who has experience working with divorcing couples and can work with both spouses. It’s important that a couple agree on a sales price and strategy to that your house can sell. If you cannot agree your realtor cannot help you and ultimately the Court may make that decision for you.
- Decide on your sales strategy with your realtor. Do you have enough funds available to make any repairs or updates to ensure you get top dollar at the time or will you market your home in its current condition? Regardless of your strategy it is important to keep your home in move-in-ready condition, keeping it furnished, clutter free and ready to show.
- Whether buying or selling, communicate your wants, needs and expectations to your realtor. With this information they can supply you with Comparative Market Analysis to determine the list price of your home and a purchase price for your future home.
Most couples will have to refinance a mortgage or apply for new mortgages. Kim Camet at Movement Mortgage (her website at https://movement.com/lo/kim-camet/resources/ has some useful calculators and general mortgage loan information) sent us the three most important pieces of advice she would give divorcing couples, which were:
- Avoid new debt (i.e. credit cards, car loans or open-ended debt) during the mortgage application process.
- Make sure to pay all bills on time. Louisiana is a community property state so if either spouse is not paying bills, it could decrease both spouse’s credit rating. This will increase the interest rate on a mortgage or, worse still, one or both spouses could become ineligible to qualify for a mortgage.
- When structuring spousal and child support agreements, remember that support to be paid for three years or longer can be considered income for the purposes of mortgage qualification. Mortgage lenders will need to see the support agreement and will want to verify that support payments have been made.
Taxes on the Sale of the Home
While Hoffman Divorce Strategies does not prepare tax returns or give tax advice, we will coordinate with your tax preparer and assist you navigate the tax issues on selling a home. Provided you have lived in your home for more than two out of the last five years any gain up to $250,000 per owner is not taxed. As with many tax laws there are exceptions to this rule. Remember that the gain on a home is the selling price, less selling costs, the original cost of the home and any capital improvements. So, gathering records of purchase and improvements is always recommended, even if a sale is not immediately planned. If the home was previously used as rental property, there may be unused passive losses, depreciation recapture and other tax issues.
There are so many things to consider when deciding what to do with the family home or moving to a new home. Hoffman Divorce Strategies will co-ordinate with the other professionals that you have chosen to work with and help you project if you can afford a new home and understand the financial effects of the division of the family home on your settlement.
For more information about how we help clients and their counsel handle the family home, or any financial question about your divorce, contact us at Hoffman Divorce Solutions.