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Divorce is a tough time for everyone involved. Dealing with the sale of a home is only part of the equation, as there are a lot of things going on for both parties. Understanding how to sell a piece of real estate during divorce, both the process and the options, will help you make smart decisions that get the whole thing over with faster. Learning how to sell a property during divorce will make it all easier.
Divorcing couples are often hard pressed to be in the same room together, much less to come to an agreement on how to proceed with the sale of their house. Because the home is the largest asset most people own, it can feel like the stakes are even higher than in a traditional home sale.
Decision factors in divorce
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There are three main drivers of decisions about selling a home during a divorce.
- Financial reasons
- Legal reasons
- Personal reasons
Most people focus on the personal facet of the divorce process, in part because the emotions are so high with the other spouse. Partnering with the other party, someone who you’d promised to love, honor, and cherish as you built a life together, meant sharing everything.
It makes the most sense to look at the process through the lenses of legal reasons and financial reasons. Deciding to sell the house shouldn’t be based on personal reasons. Divorcees need to look at it through the lens of smart decision making.
The family home is emotional
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The family home is a place of memories and is often the emotional heart of a couple. Letting it go is naturally difficult. Oftentimes, the family house is the most tangible reminder of a couple’s life together.
Community property in the form of the marital home is a tough issue. People’s feelings get involved and that makes it tough to think about the house during a divorce. The marital home is a place where you built a family together, with or without children.
Letting go of the marital home is not all bad, though. It can be a positive emotional step forward to break with the other spouse is an important step in the healing process.
Holding on to a house during a divorce can be tempting, but there are powerful reasons to separate property or consider selling real estate.
There are liability reasons, especially when it comes to tax time and thinking about the financial upkeep of the real estate. Talk to a tax professional about how to leverage other assets and how to best negotiate sale proceeds when selling a home you used to co own.
Selling may be the best option given all of the financial, legal, and personal factors. Liability reasons could really push that decision making process.
The most valuable asset
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The marital home is likely the most valuable asset the couple has together. It can also have a strong sentimental value.
That sentimentality might lead the couple to decide that one spouse should keep the home, even though the other wants to sell it. Things can become complicated when both want to keep the home and neither is willing to negotiate.
Deciding how to split the house is tough. If both want to live in the home, they have to work out an agreement that is functional for everyone. For example, one spouse could stay in the house until the final sale date, while the other moves out. This way, neither retains custody of the property, but they also aren’t making things more difficult by involving attorneys and the court system.
When two formerly loving people can find a civilized way to have a relationship during this difficult time, it makes it much easier than using a divorce attorney for everything.
Real world divorce scenarios
There are three common scenarios that play out for a divorced couple and splitting the home.
- One spouse buys out the legal interest of the other, keeping the marital home.
- The couple agrees to a home sale and divides any equity between the two parties.
- One spouse continues to occupy the home for a certain agreed upon period, then the house is sold.
All of these scenarios can be part of the divorce trial. A real estate professional can help work out the issues, including other legal interest issues.
What is a “Buyout?”
A buyout is a situation where the divorcing couple decides that one spouse will “buy out” the interest of the other in the home. This way, both spouses get what they want out of the divorce petition.
The mortgage or financial upkeep of the home falls onto the spouse who decides to stay in the home in this scenario. The buying spouse will have to pay fair market value for the home in a divorce selling scenario. Community property interest is easily solved in a buyout.
Real estate appraisers can help determine what the home interest should be sold for. After that, a written and signed agreement between the spouses will seal the deal. Whatever the buying spouse contributed to the home sale price is part of the divorce settlement.
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In situations where there are children, one general is the custodial parent while the other has visitation. Typically, the custodial parent will buy out the noncustodial parent to keep the children in the family home.
This scenario is ideal if couples have kids and want to provide stability. It also works out well if the market conditions aren’t quite conducive to sell quickly.
Buyouts don’t usually happen all at once. The details will usually be in a settlement agreement or part of the divorce settlement. A buyout does almost always involve refinancing the property under one person’s name. Working with a mortgage lender can help, as can working with a real estate agent.
Refinancing for divorce
In most cases, one spouse will apply to get the home refinanced under their name only.
For example, let’s look at a home that currently has a mortgage loan with a principal balance of $200,000 and an equal amount of equity in the house, $200,000. The buying spouse would need a loan of at least $300,000. This includes one-third, or $100,000, to payout the equity that the other spouse has in the house, as well as $200,000 to pay off the previous loan.
When you sell your house during divorce proceedings, it proceeds like any other home sale. One spouse signs the deed to transfer ownership of the home to the other spouse. Then an escrow company takes care of most of the paperwork and transfers the funds.
Consider the needs of your children before you sell
When children are involved, things get much more complicated.
It’s important to factor in the children’s needs before making any final conclusions on what to do with the home. The stressful situation of divorce takes a toll on the kids even more than the toll that it takes on the parents. Kids should be included in the process. Parents need to ask their kids about what they want out of the situation.
Often, kids try to leverage their own emotional reasons through the divorce process. It’s still important to listen to what they have to say about selling the home. Divorce affects the future value of the home, but it also affects the kids.
Get on the same page
It’s essential to get everyone in sync regarding the home’s sale, if at all possible. Get a written agreement between the two parties. It should lay out a plan about how the profits from the sale will be split.
Couples who are unfamiliar or uncomfortable doing this alone should work with an attorney to negotiate the house during a divorce. The attorney client relationship is privileged, so they won’t have a stake in what happens to the house during a divorce.
Though family law can help, no one wants to end up in divorce court. The home sale process is governed by family law in a divorce, but if you get on the same page, you can get around that. A law firm can help without going to divorce court.
If you choose to sell the house and your spouse is not in agreement, hire a mediator or lawyer.
Be prepared for court
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Not all couples are able to come to an agreement. If this happens, it’s a difficult road when the parties can’t make a decision whether to sell the home, keep the house, or even what real estate agents to use. Paying for a divorce attorney and preparing for court will likely be the next action.
The earlier couples get an agreement on how to sell the home during a divorce, the better. This will allow them to avoid costly legal fees down the line. It will also make the selling process much more easily accessible. Each party won’t have conflicting interests about whether they should keep, rent out to others, or sell their share of the home.
If no one takes steps early on to come to an agreement, everyone could end up subject to a court order.
Prepare your home for sale
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During divorce, there is a specified period in which you are selling a home. You’ll get more money if you sell the house with a real estate agent, but selling the house will go faster if you go with a cash home buyer. Get a pre-inspection of the real estate before putting it up for sale
If selling is the goal, it’s important to inspect the home to determine if there are any red flags for potential buyers. A pre-inspection by a qualified contractor can help determine if there are any problems with the property before putting it up for sale or listing with an agent. They’ll be able to tell you about any problems they see.
Repairs and updates
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When following the agent’s advice, it’s best practice to make repairs and updates to anything that may need it.
You’ll start with a thorough cleaning, decluttering, and staging the home with furniture. This makes prospective buyers appealing on paper and in person. If any structural issues or repairs need addressing, get them resolved so you’re not spending money on maintaining them while also being liable for any future damages.
In the listing, the agent will include a list of updates that have been made recently, such as new paint or carpets. After updating the home and making repairs, write out a list of all recent renovations for potential buyers. This will make the house more appealing to buyers by helping them know that this is a home they can move into and enjoy.
Keep a conscious timeline
If you are worried about selling your house due to emotional and mental strain, take all the time you need.
Try to keep in mind that, though this is hard, it’s also what’s best for everyone. Your youngest child might not even remember all of this chaos. Parents can move forward knowing that they have done their best during one of the most challenging periods in your life.
If you decide to sell it on the market, know that the property’s closing date is unpredictable and could be 30 days, 90 days, or more. A house is not going to get sold immediately. The buyout process isn’t a fast one.
Don’t forget about capital gains tax
One factor to consider is the capital gains tax from the sale of the property. Couples who are married and selling a home, can exclude up to $500,000 in profit. That only works before the divorce is finalized. After the divorce is final, it’s twice as much for selling a home.
To qualify for this exclusion, someone must have lived in the property for two of the last five years. It cannot be an investment property.
There’s a significant financial incentive to sell the house before the divorce is final. Reducing the real estate taxes and capital gains tax is worthwhile. If a spouse has enough income to make it work, selling the house during divorce through buyout can be the simplest way forward.
How to sell your house during a divorce
When it comes down to crunch time, without much time to make repairs or put money into the property, selling the house quickly is essential.
The fastest way to sell a house as-is is to sell to a local investor. Investors are looking for fast home purchases, and they can get closing finished up quickly.
Investors don’t typically care about the condition of a piece of real estate. They often buy homes that are in need of significant repairs or have been abandoned. Even with that, before an investor looks at the house, it’s a good idea to move personal items out of the way and declutter. This gives them access to things like appliances and plumbing, as well as electrical and utilities.
A local investor will never charge any money upfront. The only time money should change hands is at the closing table.
Professional homebuyers are similar to investors, but these companies work with a whole team. They include lawyers, real estate agents, brokers, and contractors. Essentially, a professional investor is a turnkey operation for selling homes.
These companies have a lot of the same advantages as working with an investor during a divorce. For example, they offer an all-cash purchase, quick closing, and no fees.
When you are ready to sell a home during divorce, you can work with a divorce expert.
These experts work one on one with couples who are trying to get out from under their home during a divorce. They walk the couple through the sales process to create a seamless home selling experience. The entire transaction is done in conjunction with family law practices.
Divorcing couples don’t even need to communicate directly with each other. If things are contentious, it’s possible to file separately with a divorce expert to do all of the paperwork.
There’s no need to work with a real estate agent to sell a house during a divorce. Mortgage payments will continue and property taxes will keep accruing during a long sale process. Going around a traditional real estate agent process to get it done fast.
Working with a divorce expert starts with submitting some information online. They then contact you with questions about the details of your home. These questions don’t cover things like spousal support or a joint tax return. However, couples can get a tax break if they get their home sold quickly.
Questions usually cover things like the condition of the house and the details of the timeline. Prior liens against the house are a priority, as are utility company charge offs. Anything directly related to the home is of interest.
Once the details are all there, the divorce expert will do a walk through of the property and make an offer.
Selling your house while divorcing
One of the most stressful things about divorce is trying to decide what to do with the home.
Anyone going through a divorce will know that selling the house is one of the first decisions and also one of the hardest decisions. Working with a divorce expert and trying to untangle the emotional realities versus the financial needs can really help.