How Divorce Affects Your Home Sale
SELLER’S ARTICLES – FOR THE SMART CONSUMER
How Divorce Affects Your Home Sale
During a divorce, the couple’s marital home is one of the most pressing issues that needs to be addressed. If the couple purchased the home with the intention of living there together, the end result is usually selling the home, unless one partner is willing to buy the other partner’s share. Because divorce is an emotionally tenuous time, selling the family home is a challenging undertaking. The decision to sell a home and the details of the sale itself need to remain completely unemotional. While this is often a difficult proposition in the middle of divorce proceedings, a home sale will be more successful and less stressful if you are able to remain emotionally uninvolved in the sale process.
Much like the situation you may have faced if both partners sold another home to buy the current home, a lot of coordination and negotiation are needed to ensure that everyone’s best interests are considered.
The best way to ensure that the home will sell within the necessary timeframe is to put the home on the market as soon as possible. Draw up an agreement between both partners to adhere to a timeline for the sale and to agree on the closing date once the home is under contract. Financial penalties may help to avoid slow-downs in the sales process and protect the interests of everyone involved.
Generally, a home that is being sold as the result of a divorce will be sold in the same way that any other home is sold. However, you must be careful to hide any evidence of the impending divorce from potential buyers. This means taking the same approach to selling the home that other sellers would take.
Divorce will really affect the sale of your home in the aftermath of the sale.
Whenever you sell a home, you face taxes on the resulting profit. In most cases, there is a profit allowance that is tax-exempt, usually about $250,000. Keep in mind, however, that to be eligible for that allowance you must have lived in your home for at least two full years. Couples who divorce before reaching the two-year mark may opt to keep the home until those two years have passed, or take a partial allowance that corresponds to the length of time that the home was owned.
The partial allowance is known officially as a partial exclusion and is available to taxpayers who meet the criteria established by the federal taxing authorities. In general, this exclusion is only offered to those who need to move as a result of a career change or a serious health problem, but there is also a clause for “unforeseen circumstances”. Divorce is generally accepted to be an unforeseen circumstance.
|In most cases, divorce will not affect the process and logistics of selling your home. However, the aftermath of the sale will be greatly impacted…|
Remember that your profit is not equal to the home’s sale price. As a seller, you will need to pay commissions, closing costs, etc. Those costs reduce the profit, as does the pay-off on any existing mortgage. If you have lived in your home for less than two full years, you will want to determine the total profit from the sale proceeds and then calculate your partial exclusion. This is a simple calculation that begins by dividing the number of months that you have owned the home by 24 (the number of months in two years). Then multiply that number by the expected profit. Of course, this result is just estimation, because it will actually be calculated according to the exact date that your home sells and the exact date that you purchased the home. However, you can assume that the estimated calculation will be fairly accurate.
Next, consider the capital gain. The portion of your profit that is subject to tax is known as or a capital gain. If you have not lived in the home for a full year, then you will not need to worry about capital gain. However, a residence of 12 months or more makes you responsible for paying capital gain tax.
In most cases, divorce will not affect the process and logistics of selling your home. However, the aftermath of the sale will be greatly impacted. How taxes are claimed and profits are distributed among partners depends on the agreements made between those involved.
The difficulty of tax preparations will depend on when the divorce is finalized. If your divorce is finalized prior to the end of the year, you will be able to file your taxes separately from your ex-spouse and will be required to pay only a percentage of the taxes, often assumed to be 50%. But other factors may influence the tax distribution. If you are still married at tax time, you can file separately or jointly and claim the appropriate capital gain percentage and amount. Consulting a tax professional for advice during the sale process will make it much easier to file tax returns at the end of the year. This process will include determining each partner’s interest in the home. Usually this is 50% per partner, but in some cases the partners will have unequal financial interests in the home.
It is highly advisable to make decisions with the assistance of your attorney when faced with an impending divorce. Protecting your interests is critical, regardless of how well you get along with your spouse. You should consult a tax accountant or other tax professional if you have any questions about how you should be reporting the sale.
Once you have decided that your home must be sold as a result of your divorce, the preparations for the sale will be practically identical to those undertaken by other sellers. You will need to consider the curbside appeal of your home and make sure that the inside is sparkling and decorated simply to attract the attention of potential buyers. Realtors will advise you to keep signs of divorce hidden from potential buyers in order to prevent them from thinking that you are desperate to sell. This means making it look as though the home is simply being prepared for sale, just like any other home on the market. Minimize clutter and stay organized throughout the sale process.
Divorce is stressful enough without the added aggravation of selling your family home. Good planning and flexibility are the keys to simplifying the home-selling process. Find a good realtor who will work with you to ensure that your home is properly prepared and that it will entice potential buyers for a fast sale.