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wait before selling your home. Consult with your accountant. In general, you must have lived in the home for three of the last five years, and there is only one deduction per couple. You should seriously consider divorcing before escrow closes so that each spouse can have the $125,000 deduction. Once used, it is forever lost, even if one spouse is not yet age 55. |
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Do you plan to buy a replacement house? If so, make sure that you buy the new house soon enough to roll over the gain from the sale of the house to your new home. Again, check with your accountant. Sometimes a couple moves and sells the house three or more years afterwards, only to discover they've been out of the house too long to reap significant tax savings on the capital gains. Check with your accountant. |
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Will the spouse who's moving out be willing to keep his or her name on the mortgage? Unless you refinance the house, both of your names will probably have to remain on the mortgage if one of you retains use of the house. If the spouse who is moving out is not willing to keep his or her name on the mortgage, and you cannot refinance, you may have to sell. |
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When You Hold on to the House |
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If you've decided to hold on to the house, meanwhile, how does that work? Say that you've decided to hold on to the house until your youngest child turns 19 and has been out for a year. How, then, will you share in the profit? Because you and your spouse are working this out (rather than letting a judge decide for you), you can make whatever arrangements you both agree to, but here are some ideas: |
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The spouse who pays the mortgage from the time of the divorce until the house is sold should probably get a credit from the net sale proceeds (gross proceeds less outstanding mortgage, broker's fees, and so on) to the extent the principal of the mortgage was reduced while he/she lived there and paid the mortgage. In the best of all possible worlds, that spouse would also get credit for any improvements made to the house during his or her solo tenure there. The rest of the net proceeds would then be split 50-50. By the same token, the cost of improvements to the home over a minimal amount (say $300) could be shared. But watch out for disputes over whether the repair is needed. |
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Consider agreeing that if the remaining spouse remarries, or has a significant other move into the house, the sale provisions which were going to go into effect when the youngest child turned 19 (or 21, whatever you have agreed) apply after the move or remarriage. For some, having a stranger move into his or her house is too much to bear. |
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