Selling House During Divorce

Need some guidance going through the divorce process? Keep reading for everything you need to know about selling a house during a divorce.

Selling Your Home
December 16, 2022
Selling House During Divorce

Divorces — even seemingly amicable ones — are never easy. Throwing in the towel on a marriage can feel like a failure, and can cast a dark cloud over future romantic pursuits. But to many couples, the division of assets following the divorce process can be even more challenging than trying to cope with lost love. 

You may have seen the photo of a divorcing couple attempting to divvy up their Beanie Baby collection on the floor of a divorce courtroom. While this might seem like the literal definition of splitting hairs, dividing up community property of any size or value during a divorce case is often exactly that. And if a collection of stuffed animals is worthy of an hours-long courtroom affair, you can only imagine what attempting to divide a piece of high-dollar property like a shared marital home might be like. 

Wanting to avoid this, some divorcing couples will opt to sell their shared marital home rather than try to legally split it “down the middle.” This process may be simpler, but it can be every bit as challenging — and knowing what you’re getting yourself into is crucial. Here’s everything you need to know about selling a house during a divorce settlement.  

Why Sell a House During Divorce? 

As mentioned above, selling your house during divorce can be a lengthy process, but it is generally a less contentious option than worrying about who gets the house in a divorce. This is largely due to the fact that many states consider a home to be shared, marital, or community property, and for many married couples, a home is the largest piece of property that they share. Depending on location, marital property may be divided 50-50; easy for a collection of stuffed animals, but not so with a single piece of property. 

There are exceptions that can further complicate this process, namely those which appear in married couples with children. Considering how difficult a divorce can be for children of any age, some spouses may argue that they should get the family home to prevent greater emotional distress. 

Though the reasoning may be sound, fighting for the family home can get expensive — fast — and put even more strain on the family in the long run. For that reason, selling the house during a divorce is typically the best way for everyone to win. In addition to avoiding lengthy legal battles, here are a few other reasons why selling during a divorce is the better option. 

You Could Face Capital Gains Taxes

No, not even a divorce can keep the IRS from getting what’s owed to them. When you sell a property, you may be on the hook for capital gains taxes if your home was appreciated during the time that you owned it. Let’s say you bought your home for $250,000, and through thoughtful renovations and a shift in market conditions, it’s now worth $550,000. As a single taxpayer, only $250,000 in profit will be exempt — leaving you responsible for the taxes on the remaining $50,000. For married filers, however, the exemption is raised to $500,000. So, if either party has any plans to do so, it might make more sense to sell a shared home before the divorce case is finalized. 

You’ll Pay Double the Mortgage with Half the Income

When two earners are living under the same roof and sharing financial responsibility for the home, the monthly mortgage payment may be comfortable or even go largely unnoticed. However, when couples divorce and the mortgage becomes the responsibility of one earner, this expense can be too much to bear. 

Think: If you or your spouse suddenly found yourselves on the hook for your home’s entire mortgage payment, would either of you be spending more than 28% of your gross income on this one bill? If the answer is yes, selling the house during divorce might be the better option. 

There Are Countless Financial Hoops to Jump Through

Dividing up assets is a structured process, and there are legal and financial procedures in place to ensure fairness to both parties. In the event that one spouse ends up keeping the home, they will have to prove their financial worthiness again — now as a sole earner. Even if the spouse is looking to keep the home by buying out the other, loan providers may not want to take on this liability. And the new sole owner could be forced to refinance under new terms or risk potential foreclosure.  

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What Are the Other Options to Consider? 

While the above difficulties may be incentive enough for some couples to sell their shared home during a divorce, no two divorces will be exactly alike, and some spouses may find a better solution elsewhere — if they’re willing to put differences aside and work together, that is. Below are some other options for couples to consider. 

Enroll in a Co-Ownership Plan

This strategy is what some divorcing couples might call a “best-case scenario,” and what others may consider an “absolute nightmare.” By choosing to co-own a home rather than sell it outright or fight for ownership, both parties can come to an agreement regarding how their mortgage will be divided, when payments will be made, what will happen in the event of a home sale, and who gets to remain living in it. This may be a risky endeavor, as spouses may be legally and financially connected to each other long after the dissolution of a marriage. With that said, many divorcing parents may find this to be the best way to provide their children with a sense of normalcy despite the circumstances. 

Opt for a Buyout

In a divorce, one spouse may be ready to walk away from the past and everything in it — creating room for a potential buyout by the other. In this case, the spouse that planned to assume full responsibility for the once-shared home will buy the other party out of the home at an agreed-upon price. This price can factor in things like which of you paid more in mortgage payments over the course of ownership, who financed renovations, or who contributed more to the initial down payment. Bear in mind, however, that this discussion may create even more tension in an already tense situation; you might find that selling is the best course of action after all.  

“Trade” for Other Shared Assets

For high net-worth couples or those with a number of valuable assets, you may be able to come to some sort of trade agreement. For instance: If, over the course of the marriage, you and your spouse purchased a primary home and a summer, winter, or weekend residence of similar value, one spouse may be able to keep a secondary residence while the other maintains the main home. Though this may sound simple, chances are there will still be quite a bit of negotiating to ensure that each party gets what they feel is a “fair” deal. But if spouses can work together toward a solution that works for everyone, this may serve as a suitable alternative to selling assets.

Consider a Sale-Leaseback

While not the most common approach for those going through a divorce, a residential leaseback agreement like the kind offered by Truehold can be the best course of action in some cases. Should you find yourself as the sole owner of the once-shared home, a sale-leaseback allows you to sell the home in exchange for equity while continuing to live in the home for as long as you want. You’ll pay market rent, and your home sale proceeds can be put towards anything you like. If you’re particularly looking forward to a bit of freedom following a divorce, this pathway may be right for you. 

How to Sell a Home During Divorce

While the above approaches are optimistic, and many couples may go into a divorce fully prepared to trade assets, arrange a buyout, or give co-ownership a try, selling the home may end up being the best approach for all parties involved. Despite being easier than other approaches, selling a home during a divorce can still be a lengthy process –– and it’s important to be prepared for every step. 

Getting Ready to Sell 

As is the case in any circumstance, preparing to sell your home during a divorce can be quite an undertaking. Factor in a potentially strained, tense relationship, and your prep work becomes even more valuable. To make sure you get the most out of the sale of your home, you’ll want to make sure that maintenance is up-to-date and that any refurbishments you wish to make have been completed prior to an appraisal. Not all divorce timelines will be the same, so be sure you have the time you need to tackle your desired repairs. You’ll also need to sort out who will finance these repairs, so take care that you, your spouse, and your divorce attorneys have clearly outlined expenses and responsibilities prior to taking on repairs. 

While you and your spouse can list the shared home for sale by owner, your odds of selling a home quickly are dramatically improved by enlisting the help of a professional realtor. As you decide on a realtor, be sure to have a conversation about what times will be best for showings, who will be responsible for facilitating these showings, and who will continue living in the home until it’s sold. Over-communication will help reduce tension, and make the rest of the sale process as frictionless as possible. 

Accepting an Offer

Once your home has been prepared for sale, professionally appraised, listed, and shown, you and your spouse can expect to get offers for your shared property. You can also expect to get offers that might be significantly lower than what you’re asking. If you and your spouse want to sell your shared home quickly, you might have to be comfortable accepting one of these lowball offers. Again, this is where clear communication comes into play –– be sure you, your spouse, your attorney, and your realtor are on the same page regarding your expectations for sale. If you and your spouse are willing to hold out for better offers, you might find that your expectations are met (or even exceeded.) 

Even with the clearest of communication, a financial decision of this size can cloud judgment and turn otherwise peaceful relations bitter. Therefore, it’s important to allow cooler heads to prevail and understand that you, your spouse, and all other parties involved are in pursuit of the same thing. As you begin to field offers, keep an open dialogue and follow the advice of your real estate agent to determine when it’s time for you to accept and begin proceeding with the sale. 

Splitting the Sale Proceeds

Remember our mention of shared, community, or marital property from earlier? Here is where your state’s stance on this property becomes important. When you and your spouse agree to accept an offer on your home, and the sale goes through, it’s time to split up your sale proceeds. Unlike the divorcing couple hand-dividing their prize stuffed animals on a courtroom floor, this process will be largely left to your respective legal counsel. 

If you reside in a “community property” state, any property accrued over the course of your marriage will be considered the equal property of both you and your divorcing spouse. This would mean that the proceeds of your home (after real estate commission, closing costs, and other administrative fees are paid) will be evenly divided between you and your divorcing spouse. In non-community property states, you, your spouse, and your divorce attorneys may be left to determine what percentage of proceeds go to each party. This split will factor in things like who financed the down payment, who bore the brunt of the mortgage responsibility, and which spouse spearheaded value-adding home improvement projects. 

Perhaps unsurprisingly, this is the part of the sale process that has the greatest potential for being contentious –– and litigious. However, the quicker you can come to a fair agreement as a team, the happier you and your soon-to-be ex will be. 

Moving On 

There are procedures for preparing your home for sale, strategies to sell it quickly and get the most out of your investment, and procedures in place to legally divide the proceeds, but there’s no guidebook when it comes to moving on. Every relationship is different, every divorce will be different, and everyone will have unique ways of mourning (or celebrating!) the end of a relationship and the sale of a shared home. 

How you choose to move on from this chapter of life will be entirely up to you. Maybe you’ll want to throw yourself into a new hobby, or your career, or devote more time to being with friends or family. If you have children, your focus will likely be on ensuring they are impacted as little as possible by this process. For this reason, many parents forget to look out for themselves during this potentially challenging time. 

At a time when some things in life feel outside of your control, it can be helpful to focus on the things in life you have control over. Practicing self-care by eating well, staying active, and just generally being kind to yourself might not make the divorce process any easier –– but you might be surprised by the impact these things can have.  

Selling a House During Divorce: Final Thoughts from Truehold

While dividing up property in the midst of a divorce might not be the first thing on your mind, understanding your options and the advantages of each can make for a more productive dialogue between you and your spouse. And while selling a shared home may end up being the best course of action for many couples, others may find unique benefits in any of the other options listed above. Ultimately, the best course of action will come down to the needs of you, your spouse, and your family. 

Whether your divorce settlement is amicable, tumultuous, or anything in-between, know that you’re not alone. To see if Truehold’s Sale-Leaseback may be a better alternative to selling a house during divorce, or for more resources from our experts, pay us a visit.  

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