Your family home is more than just bricks and mortar; it holds precious memories of your family’s history and is often your largest asset. Deciding what to do with it during a divorce involves more than emotions—it’s a significant financial consideration. The ultimate choice of whether to keep or sell it is up to you.
However, before making any final decisions, consider these three key questions.
1. How will your decision impact your long-term financial stability?
Keeping the family home can provide a sense of continuity, especially for children. However, it also comes with ongoing costs. Carefully assess your post-divorce income and anticipated expenses. Can you pay the mortgage payments, property taxes and regular maintenance, knowing these costs may rise over time?
Selling the home could provide a lump sum to invest in your future, but it also means finding a new place to live. Think about your career prospects, retirement plans and overall financial goals when making this important decision.
2. Would you rather refinance or buy out your spouse’s share of the home?
If you choose to retain ownership of the family home, you’ll likely need to either refinance the existing mortgage solely in your name or buy out your spouse’s share of the property. Refinancing requires you to qualify for a new loan based on your individual income and creditworthiness. This could potentially lead to a higher interest rate or less favorable loan terms.
Buying out your spouse involves a huge amount of cash or taking on additional debt. Consider whether you have the resources for either option and how it will affect your overall financial picture.
3. What are the tax implications of selling versus keeping the family home?
The tax consequences of your decision can be substantial. If you sell the home, you may be eligible for a capital gains exclusion of up to $250,000 (or $500,000 if you filed jointly) provided you meet the residency requirements.
However, if you retain the home and sell it at a later date, you might only qualify for the individual exclusion. Additionally, consider how keeping the home might affect your future tax filings in terms of mortgage interest deductions and taxes.
Make informed decisions
Whether you decide to keep or sell the house, keep in mind that this process is deeply personal. It’s important that you’re aware of all the factors involved so you can make an informed choice for your future.
If you’re seeking guidance on handling real estate during divorce, consider seeking a legal professional with experience in family law and property division.
