Selling the House When You Divorce

If you're like most couples who own a house or condo together, that property is probably one of your most valuable marital assets. And if you're getting divorced, you'll need to divide your interest in the property. The most straightforward way to do that is to sell the property and split the proceeds. Before you decide to do that, you should know the benefits and drawbacks, as well as what you'll need to do before and after the sale.

Pros and Cons of a Home Sale With Divorce

When you and your spouse can't agree on what will happen to the family home in the divorce, a judge will have to decide for you. Typically, judges will simply order you to sell the house. But in a few states (like California and Florida), judges may consider whether it would be best for the children to allow one spouse to stay in the home with them for a while after the divorce.

If you want to avoid a forced sale, you and your spouse will need to agree that one of you will buy out the other, or that the two of you will continue to co-own the house for a period of time.

There are drawbacks to selling the family home when you divorce:

• You may have to pay capital gains tax, depending on whether you qualify for the partial exclusion on those taxes and the amount of the gain from the sale. In contrast, divorce-related transfers between spouses (as with a buyout) are generally not taxable.
• You'll also have expenses related to the sale, such as the broker's fees, repairs, staging, and inspections.
• It might be a bad time financially for a sale—for instance, if interest rates are high, housing prices in your area have dropped, or you owe more on the mortgage than the probable sale price.
• If you have children, forcing them to move after a sale could be an added disruption—along with the divorce itself—especially if the move also means changing schools.
• You or your spouse might have a particular attachment to the family home and be loathe to give it up.

Still, you may agree that the advantages of selling outweigh the disadvantages. For instance:

• Both spouses get their share of the equity after a sale, which can allow each of them to start over after the divorce.
• Selling avoids a drawn-out and expensive legal fight over which spouse gets to keep the house in the divorce.
• Also, a sale may be the only feasible choice if you can't afford a buyout, and you want to avoid the financial (and interpersonal) risks of co-ownership.

Steps in Selling Your Home

The process of selling a home involves several steps, and the emotional upheavals of divorce won't make the process any easier. You and your spouse will have to cooperate (or at least divide up) the various tasks.

Picking an Agent

In general, it's fine to sell a house without an agent. But that would add a lot of stress and work, so it's not recommended when you're in the middle of a divorce. Try not to spend a lot of time arguing about who your agent will be. If you were satisfied with the agent who worked with you when you bought the house, see whether that person is available. If you're starting from scratch and having trouble agreeing, each of you should pick a friend or relative, and have those two people agree on an agent. Or you can each choose an agent and have those two agents select a third to sell the house—if the first two agents are willing to do it with no listing in the offing. (They probably will if they both work for the same realty company and you agree that they can pick someone in their company.)

Settling on an Asking Price

Take the agent's advice about your asking price—that's one of the main reasons you're using an expert instead of selling the house yourself. Turning that decision over to the agent will eliminate one potential conflict. If you think the agent's opinion is off-base, you might need a different agent (or a reality check of your own).

Preparing to Show the House

Getting the house ready can be the most difficult part of the sale process. There's often some work that needs to be done—minor repairs, painting, and the like—before the house is ready to be shown. You and your spouse will need to agree on how to pay for that work. You may also have to agree whether more extensive home improvements would add enough value to be worth the money and effort.

If both of you have moved out by the time you put the house on the market, you can leave the place to be staged by the agent. If one of you is still living there, you'll at least need to get things cleaned up, get the clutter out of the way, and probably remove some of the furniture. If this work falls mostly on one person, you might need to figure out a way to compensate that person for the extra effort.

Reviewing Offers

You'll have to work with your spouse when it comes time to review offers from potential buyers and decide which one to accept. That's especially true if you live in a place where the real estate market is volatile. Of course, your agent can advise you, but ultimately you and your spouse will have to make the decision jointly.

Closing

As part of the real estate closing, the escrow company will distribute the proceeds after you've paid off any remaining balance on your mortgage, closing costs, commissions, and other related costs.

Of course, you'll need to have moved out of the house by the closing unless you and the buyer already agreed that you could stay longer (what's usually known as a "rent-back" agreement).

Dividing the Sale Proceeds

Once the sale has gone through, you'll need to agree on how to divide the proceeds. If you can't agree, a judge will decide for you, based on your state's laws on property division in divorce. Although most states require only an equitable (fair) distribution of assets and debts between the spouses—rather than a 50/50 split—judges usually aim for at least a roughly equal split.

Before you split the proceeds, however, you may need to make other adjustments. For instance:

• You may have to pay off all marital debts with the sale proceeds, if you and your spouse agreed to do that (or the judge ordered it).
• If one spouse continued to make mortgage payments with separate property income, that would have increased your joint equity in the house. In that situation, you may need to account for that contribution when you're distributing the proceeds.

Getting Help With a Home Sale

Once you know you'll be selling your house when you divorce, a good real estate agent should help you through the process. But if you're still deciding—or you and your spouse can't agree about the house (or any other issue in your divorce)—it would be smart to get advice from an expert. An experienced family law attorney could walk you through the options that would help protect your financial future—and the interests of your children, if you have kids at home.