Divorce: Keep the House?

A house is often seen as more than an asset. It's where you live. You may have put a lot of hard work into making the house feel like home. It can be a difficult choice to give that up during a divorce.

Can you afford to keep it?
Make sure it makes financial sense for you to keep the house. You may have bought the house with two incomes and keeping up with payments on one income may be tough or even impossible. Think not only of the monthly mortgage payment but also of the insurance, repairs, maintenance, property taxes, utilities and other expenses for which you will be responsible.

To keep the house, you may be required to buy out your spouse's equity in the house, which is measured by the value of the house minus any mortgages owed on it. You might be able to "trade" assets. In other words, you would give up your half of some other assets you own jointly to pay for your spouse's half of the house. You may be able to refinance the mortgage for more than you currently owe and pay your spouse for your spouse's half of the house from the proceeds of the new mortgage.

Keeping the house, if you can, may provide you some stability in an unstable time. You may want to keep it to get you through the divorce and make decisions after you've had a chance to settle into your new situation in life. On the other hand, selling the house may set both you and your spouse free. You'll be able to make a clean break from your married life and start over.

As you can see there are a lot of things to consider in keeping a house. You need to make the decision that's right for you. Think about it very carefully.

Can you afford to sell the house?
In general, selling a house will put you in a better financial position, but not always. Consider how much you can sell it for, then subtract selling costs and the amount that is still owed on the mortgage. If you're selling and splitting the proceeds, you'll need to halve that amount. What you're left with must provide you with a solid financial base from which to find a new place to live and start your new, single life.

Is your spouse keeping the house?
If your spouse will be keeping the house, make sure you obtain an appraisal if the value of the home is in question. Also, get accustomed to the fact that it will no longer be your house. It may seem like you're leaving the life you had while your spouse is still living in it. But even though the home may be the same physical structure, in reality, wherever either of you live, your lives will be forever changed. Also consider how you will feel if your ex-spouse acquires a new mate who moves into your old home.

Does joint ownership make sense?
It may make sense to own the house jointly for an extended period after divorce. For example, Dad can agree to let Mom and the kids live in the house until the kids graduate from high school. As long as the divorce decree provides for Mom's exclusive use of the home, Dad will be able to exclude his share of the gain when the home is sold.

Taxes on the house
If you're awarded the house in your settlement, whether you choose to remain there or sell, you'll have serious tax implications to consider. Before you decide to keep the house, be sure you consider capital gains taxes. Individuals are allowed up to $250,000 in tax-free capital gains when they sell their home. Couples are allowed $500,000. To qualify, you must have lived in the home for at least two of the five years prior to the sale. There is no age requirement.