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Pros and cons of selling a family home before filing for divorce

On Behalf of | Dec 7, 2021 | Family Law |

A family home is often one of the largest assets owned by spouses. And many carry significant equity. But when two parties decide to divorce, what happens to the property? Some couples wait and include it as a marital asset in their divorce. Alternately, other parties opt to sell the property before initiating their divorce.

If you are planning to divorce, you should take note of both the advantages and disadvantages of this option.

No legal restrictions

If neither of you has filed for divorce, you face no legal barriers to selling the property; however it is not wise to sell it unless you mutually agree to do so if you are contemplating a divorce. You are simple two legally married people choosing to sell their home. Positive aspects of this choice include:

  • Opportunity to pay off your joint mortgage
  • Acquire remaining proceeds to pay for individual living arrangements
  • Remove one major asset from the property division process

A high-value home might expose you to capital gains taxes. As long as you have occupied it for at least two years, you could qualify for the home sale exemption from this tax. As a married couple filing jointly, you can claim a $500,000 exemption from taxes on the proceeds.

Potential disadvantages

If one of you hopes to keep the home after the divorce, then you would have to go forward with the divorce and negotiate the home’s ownership as part of the final settlement. You could also run into taxes if you have not owned the home very long. Ownership under two years could leave you owing capital gains taxes. For that reason, you may wish to wait before listing the home. There are also custody related considerations you may want to consider before deciding whether to sell your home if you are contemplating a divorce.

Alternatives to selling the family home

A divorce does not have to force the sale of a home. If financially feasible, you may negotiate a buyout that compensates your former spouse for the home’s value. An asset exchange works as well. People with other major assets may swap assets so that the person who wants the home can achieve sole ownership.

If you have questions, reaching out to an attorney with knowledge in divorce law asset division is advised.