Navigating real estate during a divorce: What you need to know
Going through a divorce is never a good time for those involved, but depending on the assets that you and your spouse own, it can become even trickier.
When it comes to property, any family home and other held property are not just financial assets but may play a practical role in the quality of life of those involved, not to mention coming with emotional ties. As such, it’s important to know how to handle real estate questions during your divorce, so let’s explore some of the factors you should know about.
Community property vs. equitable distribution
Depending on where you are, you might find that properties are divided differently during a divorce. There are two types of states, and the first is community property states. These consider all assets and debts acquired during the marriage to be jointly owned, meaning they are liable to be split 50/50, regardless of whose name is on the title.
Meanwhile, equitable distribution states divide property with “fairness” being one of the key measures of how it’s divided. This doesn’t strictly mean equal, as differences in income, contributions to the household as well as factors like the length of the marriage could see one spouse getting a larger share of the assets by default.
Is the property marital or separate?
Not all property will be treated under the laws mentioned above, however. When you or your spouse bought, inherited, or otherwise acquired the property plays an important role, as well. If the property was purchased before the marriage, it might be considered separate, although there are exceptions.
For example, if both spouses contributed to mortgage payments or improvements during the marriage, the property may be considered commingled and, as a result, partly marital. Similarly, if the title was changed to include both names, that could also shift its classification. Working out who the property legally belongs to is important, as you may be surprised if you consider the property separate, only for the courts to disagree.
Get a professional home appraisal
Although real estate may be more than a financial asset alone, when it comes to the division of those assets in the court, the finances do matter. For that reason, you want to make sure that you know what it’s worth. Given that your emotions and attachment to the property can cloud your judgment, it’s best that you arrange for a professional home appraisal.
An appraisal provides an unbiased estimate of your home’s current market value. This becomes the basis for determining equity, deciding on buyouts, or negotiating other assets in exchange. Relying on online estimates or personal assumptions can lead to disputes or unfair divisions. Both parties should agree on a single appraiser to avoid arguing over the “real” value of the property.
Decide whether to keep or sell the home
When you have a good idea of the overall value of the property, then it’s time to think about whether you should sell it or whether one of you should keep it. Often, the cleanest route is simply to sell the home and split the proceeds between the two parties based on how its ownership is likely to be divided. However, that’s not always a practical option.
If the market isn’t doing well, it can be a waste of money, and if there are children involved, then you may want them to continue living in that home for some measure of stability. If one spouse wants to keep the home, they’ll usually need to buy out the other’s equity share. This can be emotional and complex. Holding onto a home for sentimental reasons is understandable, but it needs to be a financially sound decision.
Refinance if one spouse keeps the home
If one person is going to keep the home, then it’s likely that, in buying out the other person, they are going to have to look at refinancing their mortgage. It can offer the financial support to buy out the remaining share of the property and also remove the other partner from the loan, including any share of ownership and financial responsibility to the property.
Otherwise, keeping the mortgage as it was before the divorce can be risky. If the ex-spouse living in the home fails to pay the mortgage, the ex-spouse who has moved out can be found liable for repayments and can have their credit impacted.
Using a quit claim deed to transfer ownership
In some cases, one party may decide to simply transfer ownership to the other party without requiring them to buy them out of it. This often happens as a result of negotiations seeing the balance fairly drawn with other assets.
A quit claim deed form is typically required to fully transfer the property, stating that one party “quits” their claim to the property, signing over their interest to the other property. However, once again, it’s important to refinance the mortgage to remove the party who is quitting the property, as a quit claim deed doesn’t remove them from it automatically.
Consider the tax implications
When you’re dealing with any kind of real estate decision, it’s always wise to think about the potential tax consequences that might come with it and to consult an accountant about how they may impact you. For one, selling a primary residence might see you qualify for capital gains tax exclusion, provided that the sale is carried out without too many delays and isn’t sold to be rented out.
Transferring property via a quit claim deed is usually not a taxable event between spouses, but complications can arise if one party later sells the home or if other assets are exchanged in the settlement. The tax consequences can be complex and far-reaching, so it’s important to consult a tax professional to avoid any surprises.
Don’t overlook hidden costs
Aside from the more obvious financial considerations, such as having to buy the other party’s share of the home or dealing with the costs of refinancing, there are hidden costs that you should be sure to consider. These can include moving expenses, utility transfers, legal fees, realtor commissions, staging, and repair costs.
You should also think about the non-financial costs, such as the emotional impact of having to uproot children from the home they grew up in. You have to be realistic about the costs and impacts of any changes made to your housing situation, helping you make more mindful decisions that don’t have unintended impacts in the future.
Work with professionals
When emotions are high and legal stakes are even higher, trying to go it alone is rarely a good idea. Working with real estate professionals, family law attorneys, financial advisors, and even divorce-specific mediators can make the process more manageable. Be sure to choose a divorce lawyer that suits your needs and how you intend to approach the end of your marriage.
You may not want an overly aggressive lawyer if you’re trying to settle things amicably and fairly with your soon-to-be-ex spouse, after all. Meanwhile, a real estate agent with experience in divorce situations can guide the sale or valuation of the home with sensitivity. Trying to cut corners by skipping these professionals may save money in the short term, but it can cost far more later if mistakes are made.
Dealing with real estate during a divorce is rarely as simple as dealing with any other physical asset, as fairness, closure, and establishing a foundation for what comes next often have to be considered as well. Follow the tips above, and be sure to get legal help to deal with the fallout.
