Homeownership remains an important, critical asset for American families. According to the U.S. Census Bureau, over 60 percent of American households enjoy home ownership, making real estate for the household the largest asset negotiated in their divorce cases.
One of the most significant and emotionally fraught issues that divorcing couples face is what to do with the family home. In the US, the outcome will depend on state laws, marital properties and separate properties, and the financial circumstances of each spouse.
Dividing marital property, such as a family home, after a divorce is very complicated. The family home is often a couple’s largest asset, so its division can significantly impact both parties’ financial futures.
Let’s find out what happens to a family home after a divorce and how property and other assets are divided equally.
How the Home Is Classified: The Three Primary Options
Once the home is confirmed as marital property, you have three main paths. You can sell the home and divide the proceeds. This option converts the property into cash and ends financial ties. The sale pays off the mortgage, fees, and taxes, and the remaining amount gets divided based on state rules.
You can also choose a buyout. One spouse keeps the home and pays the other for their share of equity. This option would necessitate refinancing the mortgage under only one name. A court order does not remove a name from a loan, which means that both spouses remain liable until refinancing.
If payments stop, both credit records suffer. Courts often set a deadline for refinancing and order a sale if that deadline passes. A third option delays the sale. One spouse, often the parent with primary custody, stays in the home for a set period.
How Equity Is Calculated
According to Naperville property division lawyer David N. Schaffer, marital property includes all assets and debts that were acquired during the marriage, such as real estate, retirement accounts, stocks, business assets, furniture, or even homes.
Equity is calculated by finding out the home’s current market value and subtracting all debts tied to it. The total debt includes all outstanding mortgage obligations and home equity loan balances and all existing liens on the property. The court system uses official property appraisals as their method for establishing market value.
If both sides disagree, each hires an appraiser, and a judge decides the final number. Sale costs also reduce equity. Agent fees, transfer taxes, and closing costs often lower the final amount by five to eight percent.
Tax Consequences of the Home in Divorce
The amount of money you’ve made from a sale or transfer is dependent upon the tax law relevant to the particular transaction. If a taxpayer has otherwise met the eligibility requirements entitling her or him to the exemption, an exclusion from tax can be as much as $250,000 on capital gains (if the taxpayer is single) or, otherwise, a maximum of $500,000 (if filing jointly) on capital gains.
Transfers of the home between spouses during divorce do not trigger tax. The receiving spouse keeps the original cost basis, which affects taxes when the home sells later.
The Role of the Mortgage When Children Are Involved
The family home becomes subject to custody arrangements that determine to whom a child‘s custody will be granted. Courts tend to favor stable settings for children, asserting that primary caregivers should stay in their homes. Financial restrictions remain relevant and ongoing. The two spouses continue to hold mortgage responsibility until one spouse gets removed through refinancing.
If refinancing does not succeed and payments stop, both credit records are negatively affected. In some cases one spouse will pay the mortgage in exchange for lower child support or a greater share of the residence at a later date. The tax treatment that applies to these given deals deserves quite a bit of attention since it carries potential consequences for both party roles involved.
Bianca Johnson’s story begins with a strong enthusiasm for writing and motherhood. This passion drove her to launch the blog, Conversations with Bianca. Its purpose is to aid mothers in tackling their daily struggles. Bianca’s personal experiences, along with her love for raising children, inspired her to build a supportive community for parents.
As a mom of two, Bianca knows how hard parenting can be. On her blog, she gives advice on how to combine work and family duties with ease. The hope is that parents can find ways to manage their lives correctly, and still have time to enjoy raising their children. Conversations with Bianca aims to assist modern moms in preserving their autonomy while taking care of their families.