7 Takeaways: Selling and Buying a Home During a Divorce

October 26th, 2020

7 Takeaways: Selling and Buying a Home During a Divorce

Selling and Buying a Home During a Divorce

Selling and Buying a Home During a Divorce

In North Carolina, the divorce rate in 2018 was 8.6 for every 1,000 people. This is a decrease from 10.1 per 1,000 the state reported 10 years ago. Despite the decline, the chance of divorce is a possibility in every marriage.

When getting a divorce one of the largest assets to be dealt with is the family home. Options include one party buying out the other or selling the home and dividing the proceeds. Each party also needs to make a decision on where they are going to reside and the possibility of purchasing another home on their own.

Here is everything you need to know about selling a home during a divorce and purchasing a new home during or following a divorce.

Can I be Forced to Sell My House in a Divorce?

The short answer is yes, but that may not necessarily happen. It may be necessary to sell the home because neither you nor your spouse has the means to buy the other’s interest in the property. If neither of you is able to buy out the other, then the home needs to be sold.

You also have to consider your ability to re-finance the house into your name only. The home was likely bought using a two-person income, you need to analyze whether you can receive approval for a mortgage of that size on your own.

The other consideration is whether you are able to swing a mortgage payment on the home in addition to paying for other life necessities such as utilities and food. It may be more financially sound to sell the marital home and start fresh in a more affordable home on your own.

A Mutually Agreed Upon Agent

During a divorce, you will need to communicate and reach agreements frequently with your spouse. This includes the selection of a real estate agent.  

One way of reaching an agreement is to each select an agent and have that person provide you with a preliminary estimate on your home’s value and estimation on how soon they believe the home will sell. Compare notes and reach an agreement on the agent that looks to render the greatest proceeds, quickest sale, and is willing to work with two separate individuals on a joint sale. Not all agents are willing to work with the mess of a divorce and the legal requirements of distributing proceeds.

Selling Property Before a Divorce Settlement

Once the agent selection is complete, you will need them to provide you with recommendations for repairs that need to be complete to render the best possible price. This may be minor things such as painting, replacing a light fixture, landscaping, or cleaning out an accumulation of junk.

You will need to decide how these upgrades are to be paid for, especially if there is anything of substantial cost, such as repairing a cracked sidewalk or putting on a new roof. You may decide to have reimbursement to whoever pays for the repair come out of the sale proceeds prior to division of the money.

Depending on how amicable your divorce is and other legal factors, it is possible that the proceeds from a home sale will be held in escrow with no distributions to your or your spouse until finalization of the divorce.

If you are planning on selling a home during a divorce we recommend you fill out an online form requesting a free home evaluation. This will provide a starting point in the listing process.

Tax Considerations

Depending on how much equity you have in your home and its value, you may be subject to capital gains tax following its sale. The current capital gains tax law states that a married couple selling their home may exclude up to $500,000 in profit. If you are single the capital gains exclusion is $250,000. 

The exclusion is only available if you maintain a residence in the home two of the prior five years and the home must be a residence and not an investment property.

By selling your home prior to the divorce you will not be liable for capital gains tax on your home if profit is under $500,000.

If the House Does Not Sell Prior to Divorce

If the home does not sell prior to the divorce, you will need to establish who will maintain the home, pay the mortgage and utilities, etc. between the time of divorce and when the home sells.  If one spouse handles these expenses then they need to receive reimbursement for those expenses prior to disbursement of the sale proceeds.

Home Appraisal

When getting a divorce, the home will need to be appraised regardless of whether or not you plan to sell it as part of the settlement. The appraisal informs the court of the home value.

The appraisal needs to be performed by a licensed appraiser. This step is a requirement when selling, purchasing, or refinancing a home. Here is what the appraiser will review

Condition of Home—if appears structurally sound, overall upkeep such as missing door handles, leaking faucets, ripped carpeting, broken windows, damaged floors, holes in walls, etc.

Homes Location—proximity to schools, fire department, police department and hospital, low crime rate, busy street or subdivision, type of surrounding buildings such as single-family homes, apartments, or commercial

Age of the Home—can be an advantage or disadvantage depending on maintenance and location, such as a historical district

Home’s Exterior—looking for signs of water damage, cracked or leaning chimney, lopsided porch or steps, damaged roof, condition of siding, garage, deck, porch, etc.

Design of the Home—is home old, dated, and lacking upgrades

Water Damage—will look for signs of water from roof leaks, plumbing problems, in a basement, stains on floors, walls, and ceilings

Size of the home—compare to similar homes in your area, square footage, number of bedrooms, size of the lot, garage and its size

Homes Interior—the overall condition and structure, number of bedrooms and bathrooms, if basement, attic, crawl space, type of foundation, type of flooring, the material used for windows and walls

Home Improvements—kitchen and bathroom renovations, energy-efficient appliances, fireplace, porch, patio, fencing, central air, new flooring, new roof, new siding, etc.

Signs of Infestation—termites, rodents, and other pests on floors and windowsills

Safety Features—handrails on all staircases, smoke detectors on every level of the home, etc.

Taking Over a Mortgage

If one spouse wishes to remain in the home they will likely need to re-finance the home into their own name. Once the divorce is final you do not want to remain on any jointly held property your ex-spouse is responsible for financially. If they do not maintain payments your credit may suffer a negative impact.

If your mortgage company allows for mortgage assumption, that may be a good option. To assume a mortgage you need to complete an assumption agreement and sign a release of liability. Once the mortgage company has deemed you to be of financial ability to assume the mortgage, they will likely need to receive a copy of a quitclaim deed and divorce decree to finalize the agreement.

Buying a Home During or After a Divorce

Buying a home during a divorce may be more difficult, but is not impossible. If you have debt owing on your existing marital home that may affect your ability to receive approval for a mortgage. Buying a new construction home may be your best bet since it's typical that a builder will accept a homebuying contingency.

If you do receive approval and find a home to your liking, you want to make sure your personal interest in the home is protected from divorce proceedings. Speak with your attorney about the possibility of a Stipulation and Order that states the parties agree that your home purchase is your sole property and sole financial responsibility.

A stipulation carries the signatures of both attorneys, you and your spouse. It is then signed by the judge and becomes a court order.

If you do purchase a home during the divorce proceedings, the final degree/Judgment of Divorce should contain the following information:

  • The address and legal description of the property
  • Where the funds for the purchase were obtained
  • That the new property is the sole property of the purchaser
  • That the new owner is solely liable for the repayment of any debt associated with the new property

Following a divorce, it is normal to get cold feet when trying to decide whether or not you can afford to purchase a new home. Steps to help you make a solid decision include:

  • Speak to a neutral third party
  • Assess your finances
  • Make a pros and cons list
  • Do not nit-pick faults in homes you view
  • Don’t stress about the housing market
  • Remember there is no perfect home
  • Get an accurate assessment of potential repair costs
  • Assess if you are overpaying for property
  • Do not keep looking for something better

The main factor is to make sure you do not put yourself into a financially stressful position. Real estate is a solid investment, but chose wisely and within your budget.

Calculate Your Mortgage

This mortgage calculator is a great tool for helping you figure out what your monthly payments will be. Simply fill in the home’s price, terms of the loan, down payment percentage, and loan interest rate. The calculator automatically figures in mortgage insurance for loans with a deposit of less than 20%. It also considers property taxes to give a realistic monthly payment.

We are Here to Help

Uphomes is the #1 local Real Estate Website in Charlotte assisting both buyers and sellers of real estate. Every home in the area is shown on their website and has a direct connection to a multi-listing service, with updates every 15 minutes.

When you are selling a home during a divorce, you need a website that is 100% accurate and has faster updates than the national website. At Uphomes registration is quick and easy.

If you are searching for a new construction home following your divorce we are here to help. Let us know what neighborhood you are interested in and we will show you all options according to your preference. 

It's important to understand that different states have different laws when it comes to selling a home during a divorce so talk to someone local! Here are a few of the different laws:

State Law on Selling a Home During a Divorce

Marital property laws vary between states, including when it was acquired and whether or not it is comingled, if the title is joint, or if it is sole ownership. To show the differences, let's take a look at a few states:

North Carolina

North Carolina does not recognize community property. The court considers various factors in the division of property including:

  • Property, liabilities, and income of each party
  • Support obligations from a prior relationship
  • Duration of marriage
  • Age, mental health, and physical health of each party
  • Custodial parent’s need to occupy or own the marital residence and/or its household effects
  • Retirement, pension, or other deferred payments that are not marital property
  • Having an equitable interest to or claim in property, or having contributed to the acquisition of the marital property regardless of whether such contribution is direct or indirect by the party not having the title
  • The contribution of one spouse to the education of the other
  • Liquid or non-liquid character of the property

The above is pursuant to N.C.G.S. §50-20 for the distribution of marital and divisible property by the court. 

Arizona

Arizona follows community property rules when it classifies marital property. Community property is all property the parties obtained during the marriage. The community property is split 50/50 during a divorce.  

The exception is a property one spouse receives as a gift or inheritance or obtains after service of a petition for divorce, annulment, or legal separation pursuant to A.R.S. §25-211 et seq. and A.R.S. §25-201.

Michigan

Michigan uses equitable distribution, which means that marital property is all property the couple acquires after marriage. The name on the title does not determine who owns it. All property is joint and is split equally in a divorce.

Separate property is a property that one spouse had possession of prior to the marriage. Property one spouse inherits during the marriage is also separate and not subject to division.

In Michigan, the courts require a fair division of all marital property, meaning each spouse receives approximately one-half of everything. Typically both debt and assets are split equally, with exceptions sometimes being made if one spouse has the ability to pay a higher amount, one spouse is responsible for excessive debt without the other party’s consent, or one spouse is more at fault for the end of the marriage pursuant to MCL 557.21, et seq., MCL 557.214, MCL 552.1 et seq, and  MCL 552.101 et seq.

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Ryan Fitzgerald

Ryan Fitzgerald

Hi there! My name is Ryan Fitzgerald, and I am a REALTOR®. My goal is to help you learn more about real estate through our Real Estate Blog! Hopefully, you enjoyed the above blog post and it found a way to provide help or value to you. When you're ready to buy or sell a home of your own let us know here. Please feel free to join the conversation by dropping us a comment below.