Determining the Fate of Your Home in a Divorce
Actress/singer Mandy Moore and ex-husband Ryan Adams finalized their divorce in June, and the divorce agreement included Moore getting the couple’s Griffith Park house and Beverly Hills condominium.
Moore opened up recently about her divorce, and it brought to light a question commonly asked of attorneys when a couple decides to divorce: What happens to the family home?
One of three things happens to a family residence upon divorce:
- The house is sold and the parties divide the equity
- One party “buys out” the other party
- The court orders a deferred sale
Sell and Split the Profits
There are several reasons why a divorcing couple may need to sell the family home and divide the proceeds. A common reason is that neither can afford to maintain the residence and pay the mortgage alone.
It’s important to consider the timing of the home’s sale. The current capital gains tax law allows for an exclusion of up to $250,000 in profit for a single person, but up to $500,000 for married couples.
That means if you bought your home for $650,000 and today it is worth $950,000, the $300,000 profit wouldn’t be taxed if you sell the home while you are still married. But if one of you took ownership of the home and then sold it, you would be responsible for the taxes on profit that exceeded $250,000.
You must have lived in the home for at least two of the past five years to be eligible for this, and the home must be your residence, as opposed to an investment property.
“In order for a buyout to work, the parties must agree on a valuation for the residence,” says Encinitas family lawyer John Griffith. “The party seeking the buyout must demonstrate an ability to provide the funds to equalize the asset transfer and the ability to refinance the property so that the other spouse’s name can be removed from the loan.”
The most common problem with a buyout revolves around determining the home’s value. The spouse who wishes to keep the home wants to limit exposure by obtaining a low valuation, but the party being bought out seeks to maximize the buyout by seeking a high valuation.
If a valuation cannot be established by agreement, or if both parties want to keep the house, then the default is to sell the house.
There are some situations in which former spouses may co-own a home for a period of time following a divorce.
Let’s say you want to buy out your former spouse, but you are unable to afford a lump sum payment. If both parties agree to it, you could make payments for a specified time.
Many divorcing couples opted for co-ownership after the housing bubble burst in 2008 and homeowners saw prices plummet. This enabled them to revisit selling the home when the market began to rebound.
The court also might order what is called a deferred sale. Upon the request of the primary custodial parent occupying the residence, and a showing that it would be in the best interests of the children to remain in the home for a certain period of time, the court can order that the parties continue to co-own the property, Griffith says. The property could then be sold at a future date—perhaps after the children have completed high school and gone off to college, or following college graduation.
Your home is an important asset, and it plays an important role in your divorce settlement. A family law attorney can consider your unique situation and help you determine an appropriate course of action. The end goal should be attaining a result that is equitable to both parties.