The process of divorce is full of difficult decisions, and the enormous scope of the matter can make it seem overwhelming. However, right now, you are the one with power to take control of your divorce and steer through the storm. Divorce requires you to make many very practical estate planning choices that may effect you for years to come if they are not handled appropriately. One of the most issues that may affect estate planning for a divorcing couple is what to do with a jointly owned home.
Broadly speaking, there are three main ways to deal with a jointly owned home in a divorce. The first is the simplest — just sell the home and divide the profits, if there are any, immediately. You may also take a loss, in which case you would negotiate how to fairly split the liability.
Secondly, you could sell the home and then agree to divide the proceeds at a later point in time. This may remove a portion from the plate of how many issues you have to deal with in the moment, which could give you the room to deal with other issues. It will also extend how long you will have to continue to interact with your spouse, and create opportunities for one spouse or the other to inappropriately use funds from the sale if proper precautions are not taken.
Thirdly, one spouse may buy out another spouse’s interest in the home. This is most common if one party wishes to retain the home, and if there is sufficient assets available to make the transfer possible.
Whichever path you choose, you may be looking at a significant amount of income that will need to be dealt with properly to avoid capital gains taxation. Current law allows you to circumvent capital gains as long as you reinvest the profits within two years of the sale.
Thousands of divorcing couples every year walk through similar circumstances, but some fail to take the necessary measures to ensure that their divorce is a successful one. Entering a divorce is often more successful with an advocate who will help you gain clear understanding of the scope of the issues at stake and ensure that you are able to protect your rights as you navigate this difficult season.
Source: Findlaw, “Divorce, Taxes, and Your Estate Plan,” accessed Dec. 01, 2016