Your Future Ex and Joint Property Decisions

Splitting up is hard to do.  Home is where the heart is, but it's also a complex financial asset.  If you are divorcing, your real estate situation may be more complicated than you think.  Here's a list of questions to ask as you unravel ownership, equity, title, and tax implications.   

Hanging onto the Home: If you have kids, there are good reasons to hang onto the home so the youngsters can have some continuity. It also may improve your odds for college-bound junior to qualify for financial aid.  Cash resulting from a sale can count against your eligibility for loan assistance and home equity may not factor into the income based aid packages. 

 Who owns the Home: Spouses may own the home 50/50 if it was purchased together, but if one spouse bought the house alone, make sure you are taking into account who’s been paying the mortgage and upkeep, it’ll determine the division of interest in the equity. 

One Party Wants to Keep the House: In an amicable divorce where you have equity in the home, get an appraisal. The spouse who stays pays an equalization amount that is half the equity. If the inhabiting spouse cannot qualify for a new loan, keeping the existing loan might make sense for a while until the inhabiting spouse can get the loan. 

Buyout: If you are planning to buy out the other party, get an appraisal and a title check. The title check will ensure there aren’t any liens on the property and that property taxes are paid. Throw in a home and pest inspection as well to see if there are any outstanding maintenance issues.

How Uncle Sam Gets Involved:   If you and your spouse sell the home jointly, you can exclude up to $500,000 of capital gain on the sale. Once you are the sole owner of the home, the entire cost of sale and capital gain liability will be yours alone and you may exclude up to $250,000.

Titles Aren’t Loans: Keep in mind that if you and your spouse took out a loan together, it might be difficult to take one spouses name off the loan without refinancing the entire loan. Just because your name is no longer on the title doesn’t mean you’re off the hook on the loan.  If only one party is paying the mortgage, it’s a leap of faith that they will continue their payments so as not to mar the other’s credit.

Still undecided about what to do? What does the house mean to you?  Is it still a place of happy memories? Can you recreate the feeling you have in the house elsewhere? After all, a house is not a home.  Home is where the heart is.