Divorce is never easy, but at least financial assets can be split using general math. When it comes to property, how do two people who lived in one house reach agreement?
Even after you’ve decided who will live where, there’s still the matter of house payments and value.
Sale and profit
The simplest solution is for both parties to move and to sell the home, but it’s not always practical. It also depends on when the house was purchased. If it was owned by a spouse before your marriage, it’s classified as separate property rather than marital property. That means equity gained during the marriage is shared, but ownership is not an even split down the middle.
What is best for the children?
Selling a home may be the easiest route, but it’s not necessarily the best scenario for your children. In divorce, experts recommend minimizing change for your kids. The household is already changing, so try to keep the house itself, the school district, and other daily securities intact. If it’s economically viable, you may keep the house and transfer ownership from marital property to a single owner.
Transferring the title and co-ownership
A partner can buy out an ex-spouse, assuming the remaining debt. This can be immediate or through a payment plan: by refinancing your mortgage or by trading other marital assets in your divorce settlement to cover the difference. Colorado has many rules regarding transferring a title.
A deferred sale is when an agreement is reached to sell the house later (such as a child’s graduation). Through even deferred sale or a payment plan, a divorced couple can maintain co-ownership without the marital connection. The advantage is that the kids and a parent stay in the family home. Another advantage is that payment is spread over time instead of as a lump sum.
The downside to co-ownership is that you share a debt with your ex-spouse. Should your ex have credit problems, it may affect mortgage payments and, in turn, your own credit score. Another risk is equity, as your investment in the home relies on the caretaking of another individual. More significantly, co-ownership includes a close relationship with your ex-spouse, which is an added challenge, both personally and for accounting purposes.
Vacation homes are subject to different criteria. However, many couples will include use of vacation property when dividing and valuing assets. It is possible to “trade” one home for another, but each family gets only one capital gains tax exclusion, so the value of a vacation home should be calculated carefully.
While there are options to divide, share and reallocate your property in a divorce, each has unique pros and cons attached. Ultimately, it comes down to family needs, negotiation skill and a firm grasp on tax and property regulations in the state.
Additional Reading: Is keeping the house a financial mistake?