Divorce is never easy, even in a no-fault state like California. It’s a business transaction in which both parties have a fiduciary duty, and that means a lot of paperwork is involved. The more shared assets you have, the more complicated it gets.
Aside from your children and family, businesses, real estate, bank accounts, investments, and taxes all get involved, and you’re lucky if things can be settled amicably without any ill will or hard feelings.
This lengthy process drags out for a year or more, and one of the biggest looming questions is what will happen with the home. While most people want to keep the house, it’s not always possible. While you as a couple may have qualified for a mortgage, neither of you may qualify individually. It’s a stressful situation but one that needs to be addressed.
The good news is you’re not alone. A prominent divorce firm estimates there are ~2.9 million divorced people living in this state. Santa Monica and Santa Barbara are the California cities with the highest divorce rates. Divorce happens, and once you have a plan of action in place to take care of the kids, you don’t want to waste time in starting a new life.
One major question remains, and the answer depends on a variety of personal factors. The only consistent factor is that you want it done and over with as quickly and painlessly as possible.
Should You Sell the House Before or After Divorce?
When it comes to divorce, you have the option of either selling prior and splitting the profits with your spouse or selling after, with the profits going to whomever is listed on the mortgage.
Each has pros and cons, and it may not even be voluntary. Sometimes, even with the best of intentions, you may find yourself forced to sell after agreeing to keep the house. You don’t want to simply abandon the house, however, no matter how much of a battleground it may have become. This is a major investment, and you have a lot of emotions invested in it.
Those emotions easily get heated when you and your spouse disagree on the outcome, but don’t let spite get in the way of your potential profits. The timing of your home sale will impact a variety of factors, including the sale price and how long it must (or even can) stay on the market.
The average home in Los Angeles stays on the market for 79 days prior to sale, which is 11 days higher than the national average of 68 days. You should discuss these options with your spouse if possible, to ensure you can both live with the outcome.
Benefits of Selling Your House During Divorce
Selling your house before divorce gets all the important paperwork and legal proceedings out of the way up front. This can be a strategic move with several benefits.
1. Tax benefits of selling your house during divorce
Selling your house prior to or during the divorce is going to give you the best tax write-off, according to the 2013 California real estate tax law. Married owners can exclude up to $500,000 capital gain from the home sale if:
- They file a joint tax return for the tax year the sale takes place
- If either spouse meets the ownership test
- Both spouses meet the use test
- And neither spouse has recently excluded a gain within the past two years.
Each individual person can qualify for up to $250,000 capital gain exclusion after the divorce, but once you start moving and filing individual tax returns, the clock is ticking.
If you sell after the divorce, it becomes harder for one or the other spouse to meet the ownership and use tests, which include owning and using the home as primary residence for at least two years of the five-year waiting period.
Every situation is different, so it really depends, but in the above scenario, the tax benefits are better if you sell before the divorce.
Disclaimer: SoCal Home Buyers are NOT tax professionals. The information provided here is for information purposes only and each person should seek a licensed Tax Professional for REAL tax advice for your specific situation.
2. Legal benefits of selling your house in divorce
Should one or the other spouse choose to keep the house, it’s going to come with legal consequences. California law dictates that a spouse or domestic partner taking a house with equity would also need to either give up something equitable or take on equivalent debt to maintain an equal net share of assets you own as a couple.
By selling the house up front, you have a specific dollar amount to list in the divorce decree and divide evenly. It’s less work for you, your lawyers and accountants, and the courts. Everyone wins.
3. It’s a fast split
Selling the house during divorce isn’t easy, but it’s the quickest way to metaphorically rip the Band-Aid off and move on with your separate lives. Divorce is never simple – in fact Dartmouth University’s Life Change Index Scale lists divorce as second only to the death of a spouse or child as the most stressful life events.
It’s not easy to sell your house now, but it’s not going to get easier with time. The fact is, there’s a reason you’re getting a divorce, and holding onto this house may keep you immersed in it and suffering for a lot longer than necessary.
Benefits of Selling a House After Divorce Agreement
Of course, selling a house after divorce can be a better option in some cases. It’s possible you’re even reading this article after your divorce was finalized and don’t have the option to choose.
If that’s your reality, here are the benefits of selling your house post-divorce:
1. A Rental Property can be lucrative
Owning real estate is a great investment, and turning your home into a rental property can be a great income opportunity. There are approximately 3.7 million married couples who run businesses together, according to the most recent Census data available.
The New York Times profiled some of those couples who divorced and continued running small businesses together, providing tips on how to do it.
2. You have a place to live
Divorce is an expensive and time-consuming ordeal. Aside from dividing everything you own in half, Lawyers.com estimates the average cost and timeframe of divorce to be $17,500 over 15 months in California.
Couples with kids are at the high end, costing $26,300 over 18.2 months, versus couples without kids paying $17,100 over 11.7 months. Keeping the house gives you a (relatively) comfortable place to live throughout this complicated process.
3. You can better time the market
If both of your names are on the mortgage and the two of you can come to a written agreement, you can hold onto your home until you reach a specific equity or profit margin on the sale.
Be careful though – real-estate site Zillow surveyed 100 market analysts who predict a housing recession in 2020, so you need to decide fast, or you could be stuck waiting another 10 years if the market takes a downturn.
Listing Your Home vs Selling Direct for Cash – Which Is Better?
When you decide to sell your home, there are a lot of costs and a whole other process involved that will add to your divorce. Realtor.com estimates the average listing agent commission is roughly 6% of the home sale price, which equates to about $15,000 on a $250,000 home. Closing costs add another 2% to the price you’ll pay to sell your home.
Selling a home also requires performing repairs, refinishing/repainting, and home staging, which can be quite costly. Staging a home for sale is a lot different than living in it, and if you both abandon the home during a divorce, it’s going to be a lot harder to sell. Maximizing your profits requires you to cut out the unnecessary middlemen.
Realtors – Unnecessary Middlemen?
We have nothing against realtors, but the fact is, you can save a lot of money by selling your home yourself. You’ve likely seen advertisements around town offering to buy your home for cash.
While it sounds like it’s too good to be true, real estate investors can give you fair market value for your home up front in cash without the need to list your home on the MLS as For Sale by Owner (FSOB), or even stage it.
Real estate investors don’t need a loan approval process, because we directly purchase the home with cash to remove slow bank processing times, agent commissions, and the hassle of preparing your home for sale.
If you’re looking for a way to quickly liquidate a home, either before or after a divorce, selling direct for cash to a real estate investor is a great way to do it.
Avoiding a Slow Market
As discussed above, real estate analysts believe the housing market could enter a recession in 2020. This could affect your home’s resale value, along with extending the time it’s stuck on the market. That will inevitably increase costs associated with listing your home.
You’ll be paying the mortgage and utility bills for an empty house while keeping up with rent/mortgage on your new home and struggling with divorce costs.
Selling your home for cash is the quickest way to cut ties and gain liquidity to move on with your life. It’ll get you out of your shared real estate investment prior to any possible recession with cash on hand to invest in other ventures more suitable to your risk appetite. Those investments will be solely yours, without the reminder of your ex haunting you daily.
So, Should You Sell Your House Before or After a Divorce?
Divorce is a long, drawn out process that’s never easy for anyone. It would be nice if it were as fast and easy as your wedding, but every year of your marriage added more to a pile that must now be evenly distributed for the sake of everyone in both families. No matter how clean the break, the residual effects will live on for the rest of your lives.
Once care of the kids is decided, everyone must figure out who’s going to live where and how to evenly divide the assets. Taxes, investments, businesses, real estate, and debt must all be considered and discussed. If you’re lucky, you can get through all the paperwork amicably. Even in those cases, a fast sell can be necessary, and that’s not getting easier in a slowing market.
Selling a house in divorce gives both parties (and the court) a firm understanding of the financial value and profits going to each party. It has tax benefits for a short window of time too, as the capital gains from the sale will be taxed both federally and locally. Holding it, however, can be a lucrative business if both parties can work together.
What happens to your house after Divorce?
If you can talk about this with your former spouse before you go to court, things will be much easier. Letting a judge decide how the division of property will go will give you considerably less control over the future of your house and whether you’ll live in the home.
Divorced couples usually choose from these options:
- The most obvious choice is selling the house after your divorce. This happens when neither party is willing to keep the house, and the money will help. As you already know, divorces and divorce attorneys get expensive.
- The next option is to have one spouse buy the house after the divorce and the other one is out. When one spouse wants the home, he or she can negotiate a buy out agreement with the other party. The one who will keep the home will need to take out a new mortgage on the property, which is a separate process. It’s also lengthy and complicated.
- Another option is to have both parties continuing to co-own the property after divorce. This is usually done by couples who don’t want to uproot their children from their home.
A divorced couple co-owning a property can be very tricky, since this would entail that:
- The mortgage of the house will appear on both parties’ credit records. If one of them can’t keep up with payments, both credit scores take a hit.
- Both parties would have to understand that this is not an informal, familial agreement anymore. It becomes a business deal, and there are contracts involved.
Each spouse is accepting of the fact that they would have to deal with the other for as long as they both co-own the property. Whatever decisions that one spouse would make regarding the property will directly affect the financial future of the other.
I Want to Remain in the Home – Is Fighting for it a Good Idea?
If you want to stay in the house, it's best to take your nostalgia glasses off and view the house as an object. It's understandable that you are attached to this home, but think about what this means for your current financial situation.
- Can you afford keeping and maintaining the home?
- Are you open to the idea of taking out a new mortgage on the property?
- Can you afford paying for repairs, maintenance costs, and property taxes or capital gains tax all by yourself?
- If you can’t keep up with the payments, are you ready to handle foreclosure?
The House is in My Name Only - Can I Sell the Home During the Divorce Process?
The short answer is, no.
All of the properties that you and your spouse jointly and separately own are part of the divorce and can be distributed.
Even if it’s only in your name, it’s still marital property. The only thing that can help you in that situation is a prenuptial agreement. Some judges might rule differently if you bought the home long before you were a married couple. How long you’ve owned the property can help you make your case.
What are the Pros and Cons of Selling My House After a Divorce?
Selling a house when facing divorce, especially when you're exhausted from it, isn't exactly a walk in the park. You have to wait for buyers, which could take a long time. You have to find agents, and you have to deal with potential buyers going in and out of your house. And then there’s all that paperwork.
There's also a chance of you ending up in a worse financial situation than before. The agent is going to want a large commission, and you might go through a few price cuts before it sells. There’s no way to know what’s going to happen, or how long it will take. With this kind of uncertainty, the entire ordeal is a massive amount of stress most people would rather do without.
How Can So Cal Home Buyers Help You, Post-Divorce?
Rest assured that with So Cal Home Buyers, when you decide to sell the home, you'll learn how your choices can affect the status of your properties as well as your financial future. If you decide that going through divorce is stressful enough, we know you aren’t looking for more stress. That's where we come in.
We may be able to provide you with a free, no-obligation all cash offer to buy your divorce property home from you, without stress hassle or headaches. You'll bypass the long drawn out closing process, avoid expensive real estate agents fees and commissions and wont have to worry about finding a buyer who wont fall out of escrow.
You'll be able to get your cash, and move on with your life. While every situation is unique and different, we have helped countless individuals in situations where a divorce was forcing our clients to sell. Whether you're in San Bernardino, Riverside County, San Diego, Los Angeles or Orange County our company can guarantee you a fast and painless house selling solution that may be exactly what you need to move on with your life
You can either fill out our online form below or give us a call at: 951-331-3844 to find out how we can help you with selling your home before or after divorce, today!
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