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Divorce and Home Ownership

A house is more than an asset. It's where you live.

You may have put a lot of hard work into making the house feel like home. Your kids may have grown up there. It can be a difficult choice to give that up during a divorce.

Can You Afford To Keep It?

You've got to feel confident that keeping the house makes financial sense for you. You may have bought the property with two incomes, and keeping up with payments on one income may be tough or even impossible. It's not only the mortgage payments, but also the insurance, repairs, maintenance, property taxes, utilities and other expenses for which you will – suddenly solely – be responsible.

To keep the house, you may be required to buy out your spouse's equity. This is measured by the value of the house minus any mortgages owed on it. Or you might be able to "trade" assets. In other words, you would give up your half of some other equally valued assets you own jointly to pay for your spouse's half of the house. Or you may be able to refinance the mortgage for more than you currently owe and pay your spouse for their half of the house with the proceeds.

Keeping the house, if you can, may provide you some stability in an unstable time. Perhaps it's just a matter of making it through the divorce, and then reconsidering your options – and perhaps selling it – once you've settled into your new life. On the other hand, selling the marital house may set both you and your spouse free. It may allow you be able to make a clean break from your married life and start over.

Clearly, there are a lot of things to consider in the matter of holding onto a house. You need to make the decision that's right for you. Think about it very carefully.

Can You Afford To Sell The House?

Most of the time, selling a house will put you in a better financial position – but not always. Consider how much you can sell it for, then subtract selling costs and the amount that is still owed on the mortgage. If you're selling and splitting the proceeds, you'll need to halve that amount. What you're left with must provide you with a solid financial base from which to find a place to live and start your new, single life.

Is Your Spouse Keeping The House?

If your spouse will be keeping the house, make sure you obtain an appraisal if the value of the home is in question. Also, get accustomed to the fact that it will no longer be your house. It may seem like you're leaving the life you had while your spouse is still living in it. But even though the home may be the same physical structure, the reality is that both of your lives have changed forever. Also, consider how you will feel if your ex-spouse acquires a new mate who moves into your old home.

Does Joint Ownership Make Sense?

It may make sense to own the house jointly for a period of time after a divorce. For example, Dad may agree to have Mom and the kids live in the house until the kids graduate from high school.

Special Tax Considerations

There are also special tax rules that apply to the matrimonial home after it ceases to be the principal residence of one of the spouses. Basically, a matrimonial home is not subject to capital-gains tax when it is sold but, if one spouse becomes the sole owner and then moves out while continuing to own it and turns it into an income (rental) property, it can lose its tax-exempt status. If that happens, the spouse who no longer owns the house can be liable for capital-gains tax if the house is sold by the non-resident-owner spouse. Provisions should be included in the Separation Agreement to protect the non-owner spouse against this potential liability.