Pitfalls to Avoid When Selling or Keeping Your Home After Divorce
For many divorcing couples, their family home is the largest asset they hold in common. Deciding what to do with their home after divorce is an important financial decision, rife with potential pitfalls. The couple may decide to sell their home right away and divide the proceeds from the sale. Alternatively, they may defer the sale of the home, and one spouse and the couple’s children may continue to live in it until it is sold. Or, one spouse may decide to buy the other out and live in their home, without selling it altogether.
Here are five things to consider as you make that decision:
1 – Get an accurate market valuation: Your home can be valued in different ways, and you and your spouse will need to come to agreement before you can sell it:
- A mortgage appraisal, performed by a mortgage appraiser, is meant to minimize a lender’s risk, so it will be based in a conservative analysis. Mortgage appraisers are required to follow federal guidelines when developing their numbers, such as: Fannie Mae, FHA or Freddie Mac.
- A real estate appraisal, usually prepared by an appraiser licensed by State of California’s Bureau of Real Estate Appraisers, analyzes your home in depth and results in a professional written opinion.
- A Fair Market Value Report, performed by a real estate professional, is a comprehensive analysis of the local market for homes comparable to yours at a certain point in time.
2 – Take advantage of your marital capital gains tax exclusion: As we mentioned in another post, How to Retain Your Home’s Capital Gains Exclusion When Getting Divorced, even though you decide sell your home, you may still be able to take advantage of the federal marital couple capital gains tax exclusion of $500,000, depending on your timing.
3 – If your spouse buys you out, make sure you are removed from the loan – Even though your name may no longer be on on the title of your home, you may still be liable for the mortgage. You can only be removed from your mortgage obligation if the loan is paid off through home refinancing, sale or other means.
4 – Be sure you can qualify for a home loan on your own: If you decide to buy your spouse out, you’ll want to ensure that you qualify for a home mortgage on your own before signing any divorce documents. A mortgage lender can help you review your finances and get prequalified.
5 – Understand the potential downside of a deferred sale: If you decide to defer the sale of your home because you believe its value will increase in the future, or you want your children to be able to stay in your home and your spouse can’t afford to buy you out, or for another reason, there may be considerable risk to you. When you want to sell your home, you will need your ex’s authorization, and he or she may disagree with your timing. If your ex isn’t able to keep up with their portion of the mortgage or the property taxes, the future sale of your home will be jeopardized. If your ex doesn’t remain current on a loan completely unrelated to your home, a lien could be placed on your home, again preventing its sale.
Contact me for assistance
Deciding on whether and when to sell your home is a major financial decision, especially when you are divorcing your spouse. If you live in the San Francisco Bay Area and would like to speak with an experienced divorce attorney with a Master of Laws in Taxation, please contact my office for a consultation.
Attorney Christina Sherman is a Marin County CA family law attorney and Certified Family Law Specialist, specializing in divorce, child custody and support, marital contracts and other family law issues.
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