Mental health experts often compile lists that rank life’s most stressful events.
Those lists are never quite the same, but one life event is always in the top three: divorce. Another one often cracks the top ten: moving.
Combine the two, and you have a prescription for disaster – particularly when a house is involved.
The home that once symbolized a couple’s joy and happiness can easily become the centerpiece of a protracted marital and legal battle. And even in the best case, when a couple is divorcing amicably, figuring out what to do with the house can present numerous financial and legal challenges.
None of them is insurmountable, though. Here’s how to handle the situation.
Who Gets the House?
This question can be trickier than it sounds. There are several common possibilities.
- One partner owned the house before the marriage: The partner may have the right to keep the home – especially if that is spelled out in a pre-nuptial agreement.
- The couple lives in a “community property” state: In most cases, the value of the home must be divided 50/50 between the partners. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington State and Wisconsin are community property states.
- The couple lives in an “equitable distribution” state: All assets acquired during the marriage must be divided fairly, but not necessarily equally. Often, the spouse who earned more money during the marriage is awarded a greater percentage of the assets.Confusing things even more, “equitable” doesn’t mean that every asset has to be divided. For example, if one partner is awarded 65% of the assets, they might get 100% of the house and 15% of everything else the couple owns, as long as the total number adds up to 65%. If spouses can’t figure out a fair way to divide what they own, the entire matter will be decided by a judge.
- The partners agree to an amicable division of property: This sounds like the best-possible outcome, but it can easily lead to a bigger problem. We’ll discuss that next.
Bottom Line: It may be relatively easy to decide who gets the silverware and who gets the Pearl Jam albums when a couple is getting divorced. A house, however, is usually the couple’s largest asset, by far. Laws vary from state to state on who is entitled to keep the home – or how much of its value each spouse is entitled to. And even if there’s general agreement between the partners, figuring out what to do with the house can make the process of splitting up even more acrimonious, confusing and expensive.
Houses Ain’t Cheap
Some couples have so much money that they were able to buy their home for cash. And after they divorce, plenty of money will be available for one spouse to buy the other one out.
We now return you to real life.
The Consumer Protection Bureau reports that more than 11 million families are currently behind on their mortgage or rent payments. And it’s no secret that even qualifying for a home loan isn’t easy, whether a couple has one or two incomes to rely on.
That simply confirms what most of us know intuitively: it’s not always easy for a married couple to keep up with a home’s mortgage, taxes, insurance and maintenance. In many cases, handling the expenses of home ownership can be uncomfortable at some times and a struggle at others.
Now add in expenses like alimony, child support, child care – and divide the couple’s income by two. A home that was affordable for two people is quite often impossible for just one spouse to afford. Finding the money for one to buy the other one out is more unlikely.
So even when the partners still get along fine and are committed to a friendly split, it’s likely that the only sensible solution is selling the house.
Couples who can handle the financial end of this dilemma may still want to sell their home for budgetary or emotional reasons. The cash from a home sale can provide each spouse with a good deal of money to resolve any debts or responsibility; starting fresh can provide a feeling of closure and signal the start of a new phase in life.
The process of selling a house due to a divorce can be much more complicated than a normal home sale. Before actually beginning the process, finding good lawyers is usually a smart first step.
Bottom Line: Couples going through a divorce quite often find that selling their house is a financial or emotional necessity. Most spouses who could afford the mortgage and expenses when together may not be able to afford those costs on their own, and leaving the home signals the start of a new chapter in life.
A Few Words about Lawyers
Very few people enjoy dealing with lawyers. Even many lawyers don’t enjoy dealing with other lawyers.
However, they’re almost always a necessity in a divorce when there are substantial assets – like a home. Naturally, each spouse will have their own divorce attorney.
There’s something else to consider, though. Nearly half of all states require that an attorney be present at, or involved in, a real estate closing. In an amicable divorce, it’s possible that the spouses can mutually agree on a single real estate lawyer – but with so much money at stake, is that really a good idea?
Whether the divorce is friendly or acrimonious, each spouse should at least consider hiring their own real estate attorney in addition to their divorce lawyer. Not only can the second attorney represent their client’s interests at the closing, they can provide valuable advice during the entire home sale and negotiation process.
We’ll have more to say about hiring professionals in a moment.
Bottom Line: When selling a house during a divorce, it often makes sense for each spouse to hire their own real estate attorney to advise them and protect their interests.
Finding a Real Estate Agent
Every city and town has lots of realtors. It’s not hard to find a good one with plenty of experience. But that doesn’t mean they have plenty of experience dealing with sales due to divorce.
Real estate agents can find the process challenging, particularly when spouses are on bad terms. They not only have to be realtors, they may have to be skilled communicators, mediators and even psychologists.
It’s worth taking the time to find an agent who has previously worked with divorcing couples, and with whom both partners feel comfortable. Once that hurdle has been cleared, the rest of the process – from setting a sales price to scheduling open houses – will proceed much more smoothly.
There’s another advantage, too. A real estate agent who’s previously shown houses being sold by divorced couples can be counted on to “say the right thing.” An agent who’s new to the “divorce sale” arena might let it slip that the couple has to sell the home, potentially giving the buyer a big chip to play during negotiations.
After finding the right realtor, they should be allowed to handle all of the details that selling a home can entail. It makes no sense for the spouses to quibble over every decision to hire painters staging companies, or when to schedule an open house; empowering the agent to take care of those tasks will relieve stress and get the necessary jobs done much more efficiently.
Bottom Line: Not every real estate agent has the interpersonal skills or patience to deal with the extra layer of complexity that a divorcing couple can present. Finding an agent experienced in divorce sales can make the entire experience easier for everyone.
Do You Need a Tax Professional? Or Two?
There are tax consequences when you sell a home. Those consequences can be even trickier to handle when divorce enters the picture.
The key consideration is the capital gains tax. A married couple is entitled to a total exemption of $500,000 when selling their primary residence, $250,000 for each spouse. If the home is sold after the divorce is final, though, the exemption may drop to a total of $250,000 because there’s only one owner.
Couples might already have a tax professional they trust for advice on issues like this. If not, they may need to find one who can walk them (and their lawyers) through the financial scenarios. If the spouses aren’t on speaking terms, they may each need their own tax advisor to ensure that they’re protected.
There’s one more potential landmine. During a contentious divorce, judges in some states may file a “restraining order” that prevents the home from being sold until the divorce is final. Attorneys and tax advisors may need to be involved to sort out the implications.
Timing is crucial when selling a house due to divorce, and a mistake can cost hundreds of thousands of dollars. Hiring or consulting with a tax expert is worth the extra cost.
Bottom Line: One of the biggest decisions a divorcing couple can make is whether to sell their home before or after the divorce is final. A tax professional can provide invaluable advice.
The Nuts and Bolts
Selling a house involves a lot of small decisions, and a few large ones.
Trying to get two divorcing spouses to agree to all of them – on the fly – can be difficult at best, and impossible more often than not.
The best approach is to anticipate those decisions and make them ahead of time when possible. This is where an experienced divorce sale realtor can be invaluable to the process, since they know all of the potential obstacles and how best to avoid them.
Here are some of the decisions that should ideally be made before the home goes on the market:
- Realtor’s commission
- Initial asking price
- Lowest acceptable offer
- How the spouses will jointly decide whether to accept an offer
- Strategy if the home doesn’t sell quickly (e.g. how long before lowering the asking price, and how low to go)
- Acceptable time frames for showing the house, and for closing
- Which spouse(s) are responsible for maintaining the interior and exterior of the home
- Amount of communication required for small details (e.g. open houses, showings)
Other and perhaps bigger decisions will also have to made, probably in conjunction with attorneys:
- What work has to be done to prepare the home for sale, and who will pay for it?
- Who will live in the home while it’s for sale?
- Who will pay the mortgage and maintenance costs until the house is sold?
Needless to say, the question of how proceeds from the sale will be distributed is the biggest decision of all. That one will largely depend on the issues we discussed at the start of this article – and quite possibly, will be settled by a judge.
Bottom Line: The day-to-day decisions which have to be made during a home sale are much more difficult during a divorce. Making as many of those decisions ahead of time, and agreeing on a process to follow for the most important ones – like accepting an offer on the house – can vastly ease the stress and streamline the process.
An Option Worth Considering
Home investors offer an option that may ease the stress, and some of the complications, involved in selling a house due to divorce. Companies like SellYourHome.com buy houses for immediate cash, and can close the sale in as little as a week.
The payoff probably be won’t be as high as it would be if the house was sold on the open market. But a quick sale for cash can eliminate all of the issues involved with owning, maintaining and selling a house when a marriage is in the process of ending.
Divorcing is stressful enough. A long, drawn-out home sale makes it even more stressful. For some couples going through a divorce, selling to a home investor makes things a lot easier.
Bottom Line: Home investors often purchase homes from couples in the middle of a divorce, for immediate cash,. The return may be lower, but stress levels will be, too.
Stay Calm and Carry On
The best advice for couples selling their house during a divorce is to not let emotions further complicate an already complicated process.
Yes, it will be stressful, much more stressful than a home sale would be for couples simply “moving up” to a nicer house. Yes, making joint decisions with someone who is no longer a lover and partner will be difficult. Yes, selling a house that was once a happy home may be extremely painful.
But here’s what couples selling during a divorce need to remind themselves: “It’s a necessary step, and the next stage of life will be waiting. Don’t make rushed or emotional decisions, and don’t look to settle scores. Stay calm and get through this. Better days are ahead.”
Selling Your House Due to Divorce: FAQ
Q: Do we have to sell the house?
A: Of course not. If you get along with each other well enough to be roommates, or can make a co-living arrangement work for the sake of the kids, no one will force you to sell. And if one partner or the other can afford to buy out the other, that’s an option as well. However, most couples find it necessary for financial reasons – or easier for emotional reasons – to sell the house when they split up.
Q: Do things have to be more difficult if the divorce is a friendly one?
A: Not necessarily, but it would require a “high degree of friendliness.” Most likely, it would require that the couple is in a strong financial situation that would allow one spouse to purchase the other’s interest in the house. And it would definitely require the ability to put aside the grudges or issues that led to the divorce in the first place.
Q: Can we just use one real estate attorney and one tax advisor?
A: Do you plan to use just one divorce attorney for both spouses? Probably not, because a single divorce attorney would find it very difficult to serve both parties fairly. (In some states, it might also not be legal.) Separate real estate attorneys, and perhaps separate tax advisors, might be necessary to safeguard the interests of both spouses.
Q: Who pays the real estate commissions when a divorced couple sells?
A: That’s a matter for negotiation, and best resolved by the lawyers representing each spouse.