How a Divorce Affects Your House, Mortgage & Taxes
Barb Schlinker Radio Show
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Of the many emotional and financial challenges with a divorce, dealing with the real estate part of it can be daunting. What are the things homeowners need to know about the house, the mortgage, and taxes when facing a Divorce?
Get some non-emotional trusted advisors around you
If a lawyer is involved sometimes the divorce decree dictates what happens to the real estate. In most cases, it’s straight forward, but you need someone to evaluate:
○The home’s value
○How you hold title
○What will happen with the proceeds when it sells
○The strategy of what happens next, will you buy another home, will you rent, are you moving away, etc.
The Four Basic Options
You have 4 basic options in the midst of a divorce as it relates to real estate:
• Sell the house and divide up the proceeds per the divorce decree
• Buy out your spouse
• Have your spouse buy you out of the home
• Retain ownership
If you have to sell and want to buy another house, check affordability first
Market values are increasing like crazy! In the past 3 months prices have increased by 8% on average from $402K – $436K. For every $10,000 in price, at the current low rates, a house payment increases by about $45 per month: If you want a great website to calculate house payments, google Bankrate Mortgage Calculator and you’ll be able to get a good idea of what a house payment will be based on your down payment, price range. It even allows you to adjust for taxes and insurance.
Be Prepared for Your Destination
Right now, most homes are selling quickly, there are very few ‘outs’ in the contract for a seller. You need to be prepared for your next destination: Be that another house. Have Pre Approval Lined up. Many people fear we will sell their homes too quickly and render them homeless…however we know how to handle this. Make sure your agent publishes you preferred closing date – most buyers will work with you. Make sure you hire an agent that knows how to put protections in place for you.
What about the Mortgage and Tax?
1. The Mortgage Will get Paid off at closing, there is no need to refinance one or the other spouse out unless the Divorce Decree mandates it.
2. How you hold title can be tricky! If you are both in the title, both are decision-makers about the home, both have to sign for everything that happens with the sale. I’ve had some home sellers, manage to get one spouse to deed the home over them, and then there is only 1 decision-maker. It does not matter if they are still both on the mortgage because it will be paid off at closing.
3. Taxes are pretty straight forward. If you are still married during the sale, a married couple can gain (profit) as much as $500,000 on the sale and not face any capital gains taxes the next year. If you are not still married, you are exempt from paying taxes on a profit of up to $250,000 on the sale. In both cases, it applies if you have lived in the home for 2 out of the last 5 years as your primary residence. Questions on that though I would make sure you talk to your tax professional when you sell.
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