How to Sell Your Home During Divorce
Selling a home is always a significant undertaking. When you need to sell your home during a divorce, it’s easy to be overwhelmed by the potentially severe financial consequences. It is a daunting task. Before you sell your home during a divorce, know the basic concepts of ownership, tax liability, division of assets during California divorce, and how to decide when it’s time to sell.
Defining and Establishing Ownership: California follows property law standards, so each party equally owns all property obtained during a marriage, regardless of what name is on the deed. A property purchased by one party, but used by both parties during a marriage is considered legally owned by both parties. Some couples choose to surpass these policies through the use of a prenuptial or postnuptial agreement.
Tax Liability: When you sell your home, it is essential to consider the tax liability attached to the gain. The gain is the difference between the sale price and the property’s original purchase price. Married couples filing jointly may exclude up to $500,000 of the profits from their tax liability if they owned the property for a minimum of two years and lived in it for at least two of the previous five years. Once the divorce is final, the tax exclusion depends on each party’s individual qualification for the exclusion. If one of the parties meets the requirements and the other party does not, one may be able to exclude up to $250,000, but the other party would only be able to claim a portion.
California Divorce and the Division of Assets: When marital homes are sold during divorce, proceeds of the sale are divided during the division of assets. Proceeds are divided depending on various factors including mortgage debt, other liens against the property, and the terms of the divorce. In many cases, proceeds are split 50/50 between the two parties. In some instances, there may be exceptions for individuals who invested significantly in the home during the divorce or shouldered a substantially higher portion of the mortgage payments before the final decree. Tax liability questions are just one of the many finance-related reasons divorcing couples rush or delay the sale of their home.
Is it Time to Sell? Selling the home before the divorce is final may have financial benefits related to liquid assets as well as tax liability. The sale of the house and split proceeds could also provide the accessible funds necessary for both parties to pay off debts and set up separate households. If you are accumulating debt due to the expenses of divorce, it may be a good idea to consider selling your home during a divorce to obtain accessible funds. If the home is sold before the divorce is final, the couple may also choose to file taxes as married filing jointly and minimize their tax liability. Divorcing couples with children still living at home often wait to sell their home at an ideal moment. Some choose to wait until after the divorce is final and allow the party who will remain in the house to buy out the other person’s interest in the property. Others choose to have both parties continue making payments post-divorce. Continued payments can serve as a means of fulfilling child support or spousal support obligations. If this situation continues for more than three years after the divorce is final, the party not living in the home could find themselves liable for a larger portion of the capital gains tax liability.
If you aren’t sure if you should sell your home during your divorce or not, let the experienced California divorce attorneys at The Maggio Law Firm help. We can help you understand the financial obligations related to a home sale during a divorce. Get in touch with The Maggio Law Firm today.
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