Should I Keep the House in the Divorce? : One of the most difficult aspects of divorce is deciding who gets to keep the family home. Many homeowners make the mistake of prioritizing their sentimental attachments to the house over the practical and financial considerations of whether or not keeping the house is in their best interests.
The value of your assets, such as the marital home, and the applicable tax rules at the time of your divorce are two factors to keep in mind. To help you determine whether or not to keep the house during the divorce, you should think about the following.
- how much it will cost you to maintain the house?
- What other housing choices do you have available to you?
- There are monetary and governmental factors to consider when selling something.
Is It Possible For Me To Keep The Marital Home?
If you want to keep the house and your spouse wants to sell it, you’ll need to figure out a way to compensate your spouse for their fair part of the equity in the home in accordance with Colorado law, which mandates an equitable distribution of marital property. The two most popular ways for this to happen are through a buyout or a cash-out refinance.
In a buyout, your spouse will receive other assets equal in value to the home you are leaving them for. Bank, investment, and retirement accounts, as well as assets that are exclusive to your portfolio, such as a company stake, can count here.
In determining whether or not the buyout is fair, it is important to take into account the tax consequences of the other assets involved. It’s important to remember that the tax treatment of your 401(k) savings will vary from that of your regular bank account.
Even if you are buying out your spouse with other assets, you will still need to qualify to refinance the property to remove your spouse from the mortgage liability if the mortgage is already in joint names.
Your spouse can be compensated for their share of the home’s equity through a cash-out refinance. You should consider the current interest rates, your ability to qualify based on income, the amount of the new mortgage payment, and the time frame needed to secure a refinance when deciding whether or not to pursue a cash-out refinance. At current average interest rates of over 6%, a cash-out refinance is no longer a viable option for many homeowners.
It’s crucial that you see a mortgage broker find out if you can afford a refinance. Most lenders will want six months of documentation showing that you have received spousal support payments before considering your application.
Meeting with a mortgage broker early on will allow you to investigate your alternatives and make educated decisions during your divorce, as you will have a better idea of how long it will take to qualify for a refinance.
What Other Housing Choices Do I Have Available To Me?
Keep in mind that after a divorce, you may not be able to afford the same niceties in a home as you had while you were married. As soon as a divorce is even being considered, you should start looking into other housing possibilities.
To avoid signing a contract that doesn’t fulfill your demands, it’s important to look at factors including rent affordability, interest rates for new loans, and the availability of housing stock.
If you have kids, it’s important to look at homes within the same school district and make sure your next property is suitable for them. Having a clear idea of what to expect from the start will allow you to make more educated choices as you progress.
What Do I Need To Know If I Want To Sell The Family Home?
You should think about the tax implications of a sale and whether you want to shoulder the burden of those expenses on your own in the future or split them with your spouse now.
Capital gains taxes on the sale of a Colorado residence are becoming an issue in divorce proceedings for the first time as property values have risen sharply in recent years.
Up to $500,000 in profit on the sale of a primary residence that you and your spouse have owned and lived in for at least two of the past five years may be exempt from federal income taxes.
The profit deduction for a single taxpayer drops from $500,000 to $250,000 if you receive the home in a divorce and later sell it. The amount you end up with after selling your house could be significantly impacted by this. If you’re going to sell the house anyhow because of the divorce, doing it now will provide you with a larger tax break.
It’s not just the profit you made on the sale that needs to be factored in; there are other expenses, such as the closing fee, realtor’s commission, cost of repairs, cost of staging, and so on.
Timing is crucial, as the sale of your property can be affected by a variety of external factors such as interest rates, the season, and the amount of competition there is on the market.
You should consult a house inspector, real estate agent, accountant, and mortgage broker if you’re going through a divorce and need guidance on what to do with your home. Having a conversation with a divorce lawyer might help you figure out what’s best for you and your family.