There’s no cookie cutter “right” answer as to when you should sell your house during a divorce. A lot of variables must be factored into your decision—including your financial situation, tax implications, and local real estate market conditions.
“We need to consider how much money you’d net if you were to sell it today, and then estimate what you might get if you waited another year or so to sell,” advises Dawn Fore, a Divorce Specialist and top-selling agent in Houston, Texas.
“Of course we don’t have a crystal ball, but we can look at the statistics that show if home values are increasing enough that waiting makes sense.”
When you already know that the home needs to go, selling it as soon as possible is often the smart choice for a number of reasons—but there are a few potential drawbacks which might make it better to wait to sell after the divorce, too.
So, how do you decide if it’s better to sell before or after your divorce? Let’s find out which option is right for you.
Sell before benefit: Cashing in on home equity provides funds for your new future
Divorce isn’t just the end of your marriage, it’s the beginning of a new, single life. One in which you’ll need to find and pay for a new place to live.
True, you’re only entitled to half of your home’s value—depending on the marital property laws in your state. However, if there’s a decent amount of equity in the house (aka the marital property), your share can go a long way toward funding a future on your own.
That money could cover a sizable down payment on a new home, help you relocate to a brand new state, or cover the costs of a rental if you’re not quite ready to commit to another property yet.
Of course, that money doesn’t have to be spent solely on new living arrangements. Since you’re free to spend it any way you please, you might splurge on a relaxing international vacation, or even use it to go back to school.
If you choose to sell the home during the divorce, you’ll be free and fully funded to start your new life the moment your divorce is finalized.
Sell before drawback: The home sale process can delay the divorce
Everyone dreams of having a quick and easy home sale—but if your marriage was no fairytale, there’s no reason to expect that selling the house during your divorce will be one either.
The home sale process is no picnic when debating every little decision with your soon-to-be-ex spouse. Picking an agent, setting the list price, prepping the property—each choice has the potential to become a battle that will delay the home sale, which could in turn delay the divorce.
What’s more, some delays could be totally out of your control, especially if you’re trying to sell a home in a tough buyer’s market.
“In most cases, if a divorcing couple knows they’re going to sell the house, they should get it listed as soon as possible because sometimes it can take months to get it sold,” advises Fore.
When the home sale proceeds are part of the divorce settlement, you may not be able to finalize the divorce until the deal closes and the equity check is in the bank.
That’s not a problem if you’re selling in a red-hot seller’s market where homes are snatched up fast in bidding wars that drive up your price.
But if your home is in a sluggish buyer’s market, it could take months just to get a halfway decent offer. And if your divorce requires the home sale to close before it can be finalized, every month it sits on the market is one more month you’re stuck in divorce limbo with your ex.
While waiting for your home to sell could potentially delay your divorce, there may be a way to finalize the divorce proceedings before the home is sold.
Sell before benefit: Selling a shared home makes it easier to let go of the past
“My house is not ‘just a thing.’ It is an extension of my physical body and my sense of self that reflects who I was, am, and want to be,” wrote Dr. Karen Lollar in her article for Qualitative Inquiry, a peer-reviewed academic journal.
In the context of a divorce, some of those emotional ties to your home could be pretty painful, making a rip-the-Band-Aid-off approach the best one for your heart.
This isn’t just true for you, it’s true for your children, too.
While some experts have suggested that keeping the house could create a sense of normalcy for kids during a tumultuous divorce, others believe that
it may be easier for kids to accept a new normal in a new home.
After all, your child is less likely to ask when daddy or mommy is coming home to a house where your ex-spouse has never lived.
Plus, it’s easier to forgive and develop a cordial and cooperative relationship with your ex if you’re not living in a house haunted by your unhappy marriage. And a healthy relationship with your ex is always emotionally healthier for your kids.
Sell before drawback: A successful home sale requires cooperation from both spouses
Selling may be in the best interest of both spouses, but that doesn’t mean your ex will see it that way. If your ex resents and resists, selling the home during your divorce can drag on and cost both parties a lot of time and money.
“Even just getting the home ready to sell is more difficult during a divorce,” advises Fore.
“It’s better if I can meet both parties together to discuss prepping the home, but sometimes I have to meet with them separately—which means deciding on what needs to be done to get the home on the market is going to take that much longer.”
Unfortunately, divorcing spouses who are at war with each other often make decisions fueled by raw emotions, hurt feelings, and anger. When there’s a lack of cooperation during the home sale, you’ll find yourself fighting over decisions that should be common sense—like setting the list price or accepting an offer.
And it’s not just the home sale itself that you’ll fight over.
When you sell the house during a divorce, you not only have to divide the proceeds from the home sale with your ex, you also need to divide up everything in the house… together.
When one spouse leaves and the other stays put, the one moving out typically takes only personal items like clothing, phones, computers, and memorabilia. Everything else stays in the house until the divorce settlement says who gets what—but that only covers the biggest, most valuable assets.
Sure, your ex may remember to list grandpa’s coin collection as a marital asset but he may not even remember that you own the Limoges china you got as a wedding gift.
Or perhaps your ex has itemized every bit of jewelry owned between you both, but forgot about the couple grand you spent on your golf clubs.
The point is, when one spouse stays in the house, so does most of the stuff. But when you sell the house during the divorce, all that stuff has to come out—which will likely lead to battling over even the most insignificant items that spent years forgotten in closets.
Sell later benefit: Selling later allows time to improve communications with your ex
Time heals even the worst wounds, so chances are you’ll have a less combative relationship with your ex once the dustups during your divorce have been settled.
Since it’s clear that resentment, anger, and bitterness can sabotage a home sale, it may be better to wait to sell the house until after the divorce is finalized.
When the home sale is no longer a weapon that can be held hostage or used against your ex during the proceedings, you’ll be more likely to make smart financial decisions that will benefit you rather than ones that will hurt your ex.
Waiting to sell is typically better for your home value, too. That extra time gives you several more years to build equity in the home and pay down the mortgage. Plus, the statistics prove that, even though the real estate market occasionally dips, overall home values rise over time.
So, you get more money out of the home sale if you wait to sell until after the divorce.
Sell later drawback: Staying tied to a property keeps you tied to your ex
Getting divorced from your ex doesn’t divorce you from the property you share with your spouse. Unless the divorce decree forces the home sale during the proceedings, you’re still married to your mortgage even though you’re no longer married to your ex.
When you both remain as co-owners of the house even though you’re officially divorced, you have to hammer out with your ex how the home will be handled.
You’ll have to cooperate on paying the mortgage, covering utility expenses, maintaining the home, making unexpected repairs, and more. This arrangement also impacts your taxes, as it requires splitting up things like the property taxes and mortgage interest tax credits.
Co-owning a home with your ex may also make it difficult to buy a home for yourself. While the home itself may be an asset, the mortgage is a shared debt that will impact your debt-to-income ratio—which is a major financial figure used to determine how much a mortgage company will lend you.
Sell before benefit: You’ll have a better chance of avoiding the capital gains tax
There’s no question that being married is a benefit when it comes to dealing with the IRS. One of the biggest tax breaks you get as a married couple is with the capital gains tax exemption.
When you sell as a married couple, you can exclude up to $500,000 of the home equity from the capital gains tax.
This means that both of you will probably be able to avoid paying taxes on your share of the equity if you sell during the divorce.
Sell later drawback: Waiting may mean paying a hefty capital gains tax
You can only exclude home equity income from the capital gains tax if the house has been your primary residence for at least two years.
So if you’re the spouse that moves out—and you wait to sell the house for several years—you’ll probably wind up paying capital gains on the equity.
The only way to avoid paying is to make sure to include provisions for the sale of the home within your divorce decree to preserve the marital capital gains exclusion if you sell the house after the divorce is finalized.
The real potential for trouble comes if you’re the spouse who stays in the expensive house—and you’ve negotiated to buy your spouse out of the property either by refinancing or trading away your rights to other marital assets.
If you negotiate sole ownership of the home during the divorce, then sell after you’re single, you’re only able to exclude up to $250,000 from the capital gains tax—instead of that $500,000 you could’ve excluded if you’d sold the home while you were still married.
Sell before or after: Which is ultimately better for you?
The life-altering decision to get a divorce is made even more difficult when you pile on selling an asset as important and valuable as your home.
Whether the circumstances of your divorce require you to sell or it’s simply in your best interest to let it go, putting your home on the market while your marriage is ending is an emotional roller coaster.
Luckily, you can use these clear-cut benefits and drawbacks to get a clear picture of your unique situation before choosing which option is best for you.
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