Selling House During Divorce
Although marriages are meant to last for a lifetime, sometimes they don’t, and instead end in bitter divorces that among other things involve the selling of a home. Selling house during divorce can be a complex process requiring both parties to cooperate. Here are some financial considerations that people going through divorce should be aware of when selling their homes.
Establishing home ownership is crucial when it comes to determining how the couple will sell a home. In many cases, a house is the biggest asset that a couple shares. The state defines ownership of a home in cases where the involved parties have lived as a party for a specified duration (at least two years, for tax purposes). In states that recognize common law, ownership belongs to the one who bought the property alone. However, most states tend to include some exceptions to this law, for instance, when a couple has lived together for some time, and the non-owning spouse has contributed to the appreciation of the property.
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A law used in Arizona to establish ownership is the community property standards. Under this law, each party owns any property acquired during marriage equally. Consequently, irrespective of whose name appears on the deed, both parties have equal rights. Furthermore, the law states that any property bought by any party but used by both belongs to the two parties. Nevertheless, a prenuptial or postnuptial agreement can enable couples to transcend some of these laws.
Buyout and Refinancing
In some cases, couples fail to agree on what to do with their home during a divorce. Whereas one partner may prefer the house to be sold, the other may want to retain it. Regardless of the opinions of the two parties, neither of the spouses can do anything without the signature of the other. In most states, the court will allow a buyout if one party wants to keep the house. However, this spouse must be ready to refinance the property in their name. The party must have the money (either cash or loan) to pay the other partner.
Mortgage debt and unpaid property taxes are other important financial considerations for a couple selling a house during a divorce. In some cases, you may need to invest in repairs, renovation, or landscape improvement to increase the value of the property. Sometimes, a couple may have to go to court to determine who should be responsible for payments.
Capital Gains Tax
When selling house during divorce, the couple has to decide on tax liability on the profit realized between the selling price and the original purchase price. By filing the tax jointly, the couple may benefit from up to $500,000 tax exemption from their tax liability. However, the couples must have lived together for at least two years and lived in the house for two years in the last five years. After the divorce, one party may fail to qualify for this exclusion. Consequently, one party may enjoy exclusion of up to $250,000 while the other may not.
Financial considerations are crucial for couples selling property during divorce. Approaching a Realtor that both parties trust could go a long way in ensuring decisions made are beneficial to all.
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