Divorce is difficult, but there are actually five options for divorce when deciding what to do with the family home. It not only takes an emotional toll on your life but on all other aspects as well. One of the main complications is what to do with the family home. To help guide your decisions, here are some considerations that can help you make the right choice:
You need to value your property
No matter what option you chose, make sure you get the correct estimate of what your property is worth. If both parties in the divorce cannot agree on the property value, then the court shall issue a joint report from your local surveyor or real estate agent. Experts will be able to determine what the family home is worth currently in the market factoring in price changes.
Chose a real estate agent
Generally, it might be okay to sell the home without the aid of the agent; however, it is often best when dealing with a divorce not to add more stress factors that you can avoid to begin with. If both of you cannot seem to settle on an agent, you can check whether the real estate agent that you worked with when you acquired your family home is still available and let them handle it. Here’s How To Hire a Real Estate Agent in Divorce
Option 1: Splitting the proceeds
By using the agent you hired, both parties can list the property and then divide the profit from the sale as agreed upon by the two spouses. Selling a family home that is considered the central residence guarantees you get up to a quarter of a million tax free when one spouse files for the taxes and up to half a million for both parties jointly. However, both parties must guarantee that the property or home was a chief or central residence for not less than two years of the five in order to qualify for the tax exemption.
Option 2: Sharing the home
This might prove trying and difficult, but some divorce couples may choose to share the family home, especially when children are involved. Both parties need to work together to ensure that they come out on the positive side of tax considerations. Always remember that you and your spouse are both liable for due taxes that result from joint returns and audits.
Option 3: Buying the other spouse out
Buying out your spouse need not be tedious. Both parties should consider having their attorneys present to ensure a smooth transaction. Your circumstances can affect the buy out process such as income or whether there are children involved. The first thing to do is to agree on the price which can be done as explained earlier. The second issue is considering the family home as one element in the whole separation of assets. For example, if one spouse wants to keep an asset that they acquired together, they may negotiate on the terms in regards to the buyout. Consider refinancing the property mortgage to pull out enough money to pay out the other party’s half of the home or property’s equity. You can also decide to take on a second mortgage instead of refinancing in order to save on the closing costs.
Option 4: Spouse ownership of rental properties
One of the spouses may opt to continue renting the home even after the split especially if it is beneficial to them i.e. near work place or kids school e.t.c .The other party may decide to sign over the property to you if it’s in their name. This may depend on the type of tenancy and is often possible when dealing with social landlords. With private landlords, transfer of ownership may be difficult or impossible without the tenancy being transferred by a court order. If the tenancy isn’t in any of the parties’ names, then the party interested may acquire the right to reside long term on the property.
Option 5: Opting to raise the kids first then selling the home.
Some divorce couples, when children are involved, may decide to keep the family home for the sake of raising kids until the time they move out. Before making any decisions on this, there needs to be an agreement between the lawyers of both parties that the spouse staying still has use of the house while the other spouse lives elsewhere. Another factor that is relevant in the agreement is that the house will remain the primary residence for tax considerations.
Be Sure To Note Vacation Homes
Vacation homes are not considered primary residences and are therefore not tax exempted. Sale of this home will mean that both parties will be liable for capital gains which will depend on the level of income. However, there may be tax exemptions if you or the other party has lived on the property for two or more years, treating the property as an investment the rest of the period. You and your spouse need to really consider your financial situation and the options available, the importance of the vacation home to each of you before making a decision on whether or not to sell the house.
One more option you may have, and what has been recommended to many people, is establishing a Trust in your children’s names and deed the property over to the Trust. This removes it from the ‘Divorcing Couple’s’ names and it remains in the family.
Of course, there will be Attorney fees involved as this in not something you wish to undertake yourself plus, there are tax consequences also you need to be aware of. Additionally, there must be enough money in the Trust you set up for your children, not including the vacation or second home, to pay for its; maintenance, property taxes, utilities, and landscaping fees. Unless you go there frequently to mow, rake leaves, and winterize the home (to prevent damage to the plumbing if you live in a colder climate) when the temperatures drop below 50 degrees.
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