If you're anything like most Americans, the house you live in is the single most expensive thing you'll buy in a lifetime. It might also be community property, which can be a source of real stress when you're getting a divorce. Unlike your bank accounts, debts and shared frequent flier miles, a house can't really be evenly split between divorcing spouses, which means that you or your spouse can buy the other out, or you can sell the house and divide the sale proceeds.
In this blog, we’ll look at why selling your house before filing for divorce may actually be your best bet:
Is selling property before divorce settlement a good idea?
As a rule, you should plan to put the house up for sale as quickly as possible once you've agreed that divorce is inevitable. By getting the property on the market early on, you're maximizing the amount of time it's available and potentially drawing in more interested buyers. That makes it more likely that you'll get an offer you're happy with, leaving more equity to divide between the two of you.
Putting your house up for sale before getting divorced also helps ease the way forward by letting you both move out and get used to something like the single life in separate homes.
One frequently overlooked benefit of selling the house before your divorce is in your tax filings. It's not uncommon for both parties in a divorce to move out of the marital home, which technically makes the house you shared into a second home for you both.
If a significant amount of time goes by and the property appreciates in value to any great degree, the increase could be handled at tax time as a capital gain and taxed at the standard 15 percent. Thus, if you both move out in April of one year and the house doesn't move until the next December but goes for $10,000 more than you paid for it, you may have to split a hefty $1,500 capital gains tax bill between you.
Confused about finances and divorce?
Explore resources that explain complex financial concepts into plain language, such as how to determine the value of real estate and decide whether to keep or sell your house.
What You Can Do if The House Doesn't Sell on Time
Putting the house up for sale before your file for divorce helps avoid all of that trouble, and there are a few things you can do to speed the selling process along. First, sit down and talk the matter through together. Be sure that you both agree the house must be sold, and that it's for the best to get it off your hands. Nothing is more certain to torpedo a promising offer than for one spouse to refuse the deal or to somehow make the property seem unattractive. People sometimes do this for financial reasons, and sometimes they do it for emotional reasons. In a divorce, you never know, so try to reach a consensus beforehand and act as a team to unload the property in an orderly way.
Another thing you can do to make sure the property sells before it becomes a white elephant in divorce court is to delay your split until the sale is final. If it seems odd to put your divorce on hold until your home sells, remember that the incentives you both operate under change when the court grants your final divorce decree. You could be working with your spouse quite happily to sell the property, and then as the final court date draws near, your spouse may start playing for time in the hope of either staying in the house or of getting a bigger share of the sale price. By putting a big "pause" button on your divorce, you can help refocus your energy on selling while you're still on the same page.
Ways You Can Keep Things Running Smoothly
Selling your house can be relatively easy or a nightmare, depending on how well the two of you are working to wrap up your unresolved issues. Ideally, selling your house before a divorce can work just the same as it would if the divorce wasn't on the table, though without the last step of moving into a new home somewhere else.
Laura Wasser believes divorce can be easy. From finances to shared assets, it is possible to agree on how to divide things amicably. She outlines several in her book “It Doesn’t Have To Be This Way,” and you can read excerpts here about community property and real estate to get a clearer picture of how you and your spouse can make your division of property go smoothly and amicably (note: the laws in every state are different so be sure to check your local courthouse website for the requirements in your state).