divorce-house (Peter Dazeley)
It happens: Marriages fall apart. And as if dissolving your union weren't hard enough, if you own a home together -- almost certainly your largest joint asset -- you'll also have to decide what to do with it. Do you stay, sell, or hand ownership to your ex?
While there's no one-size-fits-all solution when it comes to dividing the house during divorce, there are multiple options that will allow you to move forward with a roof over your head.
Let's take a look at some of the different ways couples can tackle dissembling the household.
Option 1: Sell and split the profit
Selling the home and dividing the profit is often the least messy of all possible scenarios.
"A lot of financial advisers and attorneys recommend that clients just sell the home," says attorney Brette Sember, author of "The Complete Divorce Guide." "It can often be the simplest way to solve all the problems. Everyone gets their share, and there is no lingering joint debt to resolve."
Still, there are some caveats to keep in mind. First, if you're trying to sell during a down market, when your house is likely to sit on the market and you stand to lose money, consider moving out and renting the property instead.
If you're selling at a profit, on the other hand, you'll want to watch out for capital gains tax, although the bar is high. An individual can exclude up to $250,000 in capital gains on the sale of a primary residence, and a married couple filing jointly can exclude up to $500,000. So depending on when your divorce is finalized, you might have more leeway. Those making a profit might also consider agreeing to use that money to pay off the legal expenses of your divorce.
That said, many people are understandably attached to a home, or decide that remaining in it is best for the children. In which case, consider the next option.
Option 2: Buy out (or get bought out by) your spouse
Before you make the decision to stay and possibly buy out your partner, it's important to find out if it's financially feasible. Natalya Price, a Realtor with Coldwell Banker Residential Brokerage in New Jersey, who is recently divorced, says it's important to remove emotion from the equation as much as possible. Of course, this is often easier said than done.
"I have a client who wanted to remain in her five-bedroom home, but in two years her children will leave for college," Price says. "I asked her, 'Do you really need this big house with all these rooms? Would it be smarter for you to sell your home and rent an apartment or a condo within the same community?'"
Whether you're the partner staying or going, make sure the buyout terms -- which will include a professional appraisal of your home's value -- sound fair and accurate.
"With a buyout, you have to be very careful," Price cautions. "Because there's no actual sale involved, the figures can be very subjective. Think about how many homes are listed and don't sell at that number. Until there's a buyer willing to pay actual money, it's just a number and you're banking your future on that."
So if the amount being offered doesn't sit well with you -- on either side -- experts encourage you to get another appraisal, much like seeking a second opinion from another doctor before moving forward.
Option 3: Delayed buyout
If you (or your spouse) want to stay in the home but aren't in a position to purchase it at the moment, there is another option: arrange to delay the buyout.
In this scenario, the spouse that stays simply continues making the monthly mortgage payments until he can afford to buy out the other, or until the kids move out and he is ready to sell.
But this option also has its own headaches. Long-term ones.
"It can lead to a lot of potential issues if people aren't careful," says Realtor Nicholas Kensington of The Matheson Team in Scottsdale, AZ. "Since this arrangement can last years, there can be plenty of fights about how the house is being cared for." Or, even worse, if the partner who stays starts dating someone, can that person move in?
If you're the spouse who's allowing your former partner to stay in the home, you're in a vulnerable situation should something go awry.
"The biggest issue is your name remaining on the mortgage," Sember adds. "If your ex doesn't keep up the payments, you're liable. It could ruin your credit rating if payments start to be missed or if the home is foreclosed on." Plus, it might affect your ability to buy another home.
The best policy to avoid any messes is to hash through all the what-ifs with a lawyer, and come up with a written plan of action. Who will do and pay for repairs? What if mortgage payments can't be made? As long as these worst-case scenarios get addressed, no one is left holding the bag.
Option 4: Divide it, literally
Remember that "Brady Bunch" episode in which Peter decides to divide the room he shares with Bobby in half? Of course, hilarity ensues as the brothers soon discover that each loses access to things he needs.
In real life, trying to co-habitate after divorce is a lot less entertaining -- and it doesn't even have a laugh track.
"Some couples choose to live together in a home after a divorce if they can't sell it and neither can afford to live elsewhere until it sells," Sember says. "Being roommates after a divorce can be very complicated, both emotionally and practically. Will you share common spaces? Can you have guests? How will you share all the upkeep costs? There is a lot to work out, and most people find this is harder to do than it initially seems."