8 Things to Know About Selling Your House Before or After Divorce
There are many things to consider and decisions to make when going through a divorce process. One of them is figuring out what to do about the house. In some cases, one of the partners keeps the house; however, this can become an increasingly difficult situation to manage, especially when there are debts involved. This is why many couples choose to sell the home and split the money obtained. That said, this is a complex process and there are some things you need to know to make it as painless as possible.
Retaining the house is equally complex. To learn how to divide the equity in a divorce visit our previous blog post. How to divide the equity in a divorce | Here is what to know.
1. Prepare for Selling
Selling your house is going to require that you show it to potential buyers. If you want to sell your house quickly for cash, you need to make sure it looks amazing and that anyone looking to buy can picture themselves in there. The first step is to remove your personal things and anything that clutters the space. You want to portray a feeling of spaciousness instead of that of a crampy place.
Take a look at the details, if there are any remains of dated wallpaper, stained walls, or there is a different color in every room, then it’s time to make some changes. You can use neutral paint, with colors such as almond, grey, and beige. This will make every room look more airy and spacious.
Also, you want to make sure the best parts of your house stand out and that things like old wallpaper don’t take the attention of those visiting. Some potential buyers are more emotional than others and just seeing the wrong colors can stop them from making an offer.
And of course, ensure the house is spotless. Use a pressure washing device for the driveway and any external areas of the house that need it. Make sure the windows are clean and make the most of any garden space you have. Think about hiring a cleaning service if you don’t have the time or the desire to perform in-depth cleaning. It will make things easier.
2. Closing the Deal
You might be lucky enough to have your house practically snatched as soon as you put it on the market or you might end up having to wait a few months. Regardless, you are bound to receive an offer and it is up to you whether you think it is a fair offer or if you would prefer to negotiate further. Leave some room for negotiation in the asking price as this is a great way to ensure everyone leaves satisfied with the sale.
It might be difficult to wait for a good offer or take the time to negotiate when you are going through a divorce. Keep in mind that this is a temporary situation and that eventually, those extra dollars can help you in your new life.
3. Dividing the Cash
Now it comes the time to divide the money between you and your former or soon-to-be-former spouse. This will take place after all the obligations on the house are paid. After this, the escrow company can split the money equally between you two. However, if one of the spouses has been the one reducing the principal amount, the distribution would need to be adjusted as needed. It really depends on the equity division spelled out in the divorce decree.
Financial Liability Aspect of Splitting the House in a Divorce
If one of the spouses wants to retain the home and they have sufficient income, they would have to take over any loans and become responsible for the payments. This will require a refinancing process unless the loan is assumed and is allowed for existing VA and FHA loans, and the other spouse would have no liability anymore. Depending on how much equity they had in the home, the remaining spouse would need to buy out the second one. A payment plan is also an option
Couples with children often prefer to keep the house to avoid any more changes in the life of their kids. This can be achieved and both spouses can stay on the mortgage. This would require clear communication regarding how the payments will be divided and if the remaining spouse will be paying an additional percentage as they get to stay in the house.
It is important to notice that in the case of co-ownership, if the remaining spouse is not consistent with the payments, the second spouse will also see their credit affected. This can be risky and should be avoided without some fail safes.
The spouse keeping the house might realize after some time that the substantial debt adds to their expenses and that it is a better idea to simply sell the house.
This is why it is often more advisable to simply sell the house before or right after the divorce. The money can even be used to pay for any debts incurred as a couple.
Legal Aspects to Consider when Selling a House During Divorce
7. Selling before Divorce
Selling before the divorce can lead to substantial benefits. If you have lived in that home for at least 2 of the last 5 years, the capital tax gains law states that $500,000 in profit can be excluded from the sale of a house. This is a number that decreases to $250,000 for single individuals. Keep in mind that this only applies to your primary residence.
8. Selling after Divorce
When selling after the divorce, the capital gains exclusion is only up to $250,000 in profit from the sale. Keep in mind that you would need to sell the house before three years have passed. This is why selling the home before the divorce is more profitable for everyone as it allows you to have more cash to restart both your lives and pay any debts or services you require, including divorce attorneys if needed. Plus, it is easier to divide the proceeds.
Deciding on selling the house before getting a divorce is likely to be the best option. While every couple and situation is different, there are undeniable benefits to selling and splitting the proceeds before the divorce process. Make sure the place is spotless and attractive to potential buyers and get ready to let go of the past and start a brand new future.
Victor is a real estate investment specialist, with more than four years of experience in the industry, specializing in real estate purchasing processes. Currently works as a Business Development Manager at Prospect Group.