Tag: selling a home

Selling a home during divorce

Selling Your Home and Divorce

Maximizing Profits on Your Home Sale during Divorce

Divorce in Texas is complicated, and taxes are complicated. The combination of the two can be overwhelming. One of the most critical components of any divorce is the division of assets, and because your family home is likely your greatest asset, the sale of your home in the divorce process can play a significant role. As such, it’s important to have a working understanding of the tax basics as you move forward. Your experienced Houston divorce attorney will guide you through the process to help ensure that you minimize any capital gains taxes on the sale of your home.

ReadFrequently Asked Questions about Divorce in Texasfor more information on the divorce process.

Capital Gains Tax and the Sale of Your Home

The Internal Revenue Service (IRS) may allow you a tax exclusion of $250,000 on the capital gains you receive with the sale of your primary home. If you file jointly with your spouse (even a soon-to-be ex-spouse), you can potentially exclude up to $500,000 in capital gains received in the sale of that home. When you’re divorcing, of course, this can get complicated, and there are plenty of details to take into consideration.

The Home Exclusion Rule

In general, tax rules allow homeowners to exclude any profits made in the sale of their primary home from being taxed as income as long as two major conditions are met:

1. You and your spouse lived in the home as your primary residence for at least two of the last five years.
2. The profits you received from the sale of your home is not more than $500,000.

If your divorce is finalized before you sell your home and it remains your primary residence, the exclusion may still apply, but it will be divided in two, and your cap will be set at $250,000 in profits.

Further Details

As with almost everything else that involves the IRS, there are more details to consider:

• To capitalize on the tax exclusion, you cannot have sold another home and taken the same tax exclusion in the previous 24 months.
• If you remarry before you sell the marital home from your previous marriage, you may forfeit your eligibility for the tax exclusion.

Again, it’s imperative that you work closely with an experienced family law attorney before making any important decisions regarding the sale of your home during a divorce.

Divorce: Throwing a Wrench into the Situation

Divorce has a way of complicating things, and this is never more true than when it comes to your finances. If you’re divorcing, the home-exclusion tax rule continues to apply to either you or your spouse (or possibly to both of you, depending upon who is living in the home as a primary residence), but whether you sell the house during or after the divorce can have an effect. Let’s consider two scenarios by way of example:

1. If you and your divorcing spouse both continue to live in your marital home (as each of your primary residences) until the house sells and you jointly file your taxes that year, you should be able to exclude a total of $500,000 from any profits you make on that sale. If, on the other hand, you file separately, you should each be able to exclude $250,000.

2. Until your divorce is finalized, you and your divorcing spouse can continue to file joint returns, and as long as you both meet the residency requirement, you can both enjoy the tax exclusion. However, if one of you moves out of the marital home (as so often happens during a divorce) the two-year residency requirement (two years out of the previous five) will come into play.

Both of these considerations are important to keep in mind as you move forward with your divorce. If you do get the tax exclusion and your divorcing spouse misses out on the tax break, you may be asked to make up for the financial discrepancy in your divorce settlement.

The Optimal Approach

Optimally, if one of you will not be keeping the marital home post-divorce, it’s in the best interest of both of you to sell your house sooner – rather than later – in the divorce process. If your divorce becomes more financially complicated and/or contentious as it proceeds, the time component could leave you unable to collect on the full $500,000 (combined) tax exclusion. Consult with a skilled Houston divorce attorney to help ensure that you maximize valuable tax exclusions.

Your Divorce: Your Home

Every divorce is unique and uniquely complicated. After issues related to child custody, however, the division of your assets will likely be the most important issue you and your divorcing spouse will face. While your home is very likely the most significant asset you possess, it is also your home, and you may not be inclined to leave it – especially if you still have children at home. There’s a lot to consider. Some couples find a means of keeping the custodial parent in the family home – at least until the children have graduated from high school. Your dedicated family law attorney will help you explore the options that are available to you and will help you find the best resolution for you and your children. Divorce is stressful, but an experienced divorce attorney will prioritize your best interests and will aggressively advocate for a positive settlement resolution.

If You Are Facing Divorce, Consult with an Experienced Houston Divorce Lawyer Today

Divorce, in and of itself, is difficult. When you compound the issue with the sale of your home, things become even more complicated – financially, logistically, and emotionally. In fact, most of us have much more invested in our family homes than simply a dollar amount. If you are facing a divorce and are likely going to have to sell your home, you need the professional services of a Houston divorce attorney. The dedicated legal professionals at the Rudisel Law Firm, P.C., in Houston, focus exclusively on divorce and family law, and we’ll help you better understand your options and help you find a resolution that works for you. For a free initial consultation, please fill out an online evaluation using the “Contact Us” link in the menu or call us at 713-781-7775 today.

For more information on Divorce in Texas, check out the following articles:

Houston Divorce property division: To Sell or Not to Sell?

Property Division in a Texas Divorce

One of the most complex and difficult aspects of a Houston divorce is property division.  It is hard enough to figure out who gets the lamp, the couch, the car and the dog but it is even more challenging to determine what should happen to the house, or in some cases, homes.  The difficulty doesn’t solely lie in the fact that the house is often times the largest asset in the marital estate or that one party or both parties are emotionally tied to the property.  The biggest hurdle to disposing of one’s castle is the inability to sell real property (at least without taking a loss) in today’s uncertain housing market.

Property Division in Texas: What you should Know

Buying a Spouse Out of the Marital Home

I commonly hear clients tell me that their spouse can have the house so long as he or she “buys them out”.  Here is the problem.  How much does a person need to give you to buy you out of a house that is worth less than what you owe on it?  The answer…zero, zilch, nothing, nada.   When a house is worth less than what you owe on it there is no equity.  Equity is what the house is worth (what you could sell it for) less what you own on it (the remainder of the note).  When there is no equity there is no money to split, therefore, no buying out.  So if the house isn’t worth anything in today’s market what can you do?  A few things come to mind.

Selling a Home in a Texas Divorce

You can put the house on the market and hopefully get the most you can out of it.  If sold at a loss, the parties are responsible for paying off the remainder of the note which is generally considered community debt.  Now both parties have undoubtedly incurred the expense of moving out of the house and as a bonus, get to pay off a house they no longer own or live in.

Also read Selling Your Home and Divorce.

Transferring Interest in Martial Property after Divorce in Texas

Another option is allowing one spouse to keep the house as part of a settlement.  Yes, the house may be worth something later but many people who find themselves in a divorce just want out and aren’t interested in housing market speculation.  Allowing one party to keep the house has its own obstacles.  You may ask: How do I get my name off of the house?  Will it affect my credit if the spouse doesn’t pay the note on time?  Can I buy another house with my name still on the first house?

Taking your name off of the house is done through refinancing or assumption.  The spouse keeping possession of the marital residence can refinance the house into his or her own name or they can ask the lender to allow them to assume financial responsibility for the note.  Both options are possible with the first being more likely, assuming the spouse has good credit and a job.  Assuming a note is basically removing someone’s name from a note without a formal refinance.  I find that most banks are unwilling to let a liable party go without a new contract and guarantees from the spouse keeping the house.

If a party cannot refinance or assume liability for the house they may consider executing a deed of trust to secure assumption and a deed without warranties.  The first deed is executed by the person who keeps the house and is essentially allows the ousted party to reclaim the property in the event the bank initiates foreclosure proceeding on the other party.  Your name will still be tied to the financial obligation on the house but you have recourse if your credit becomes threatened due to non-payment of the note by your ex-spouse.  The ousted party will execute a deed without warranties to the party keeping the house thus giving up their interest in the real property.  In short, the ousted party will not be on the deed to the property even though they remain on the note.

If the deeds are executed and recorded properly, the only issue left is whether or not the ousted party can buy another house while still technically owing on the first.  That will be up to a finance company.  Your debt to income ratio may be in trouble because with a new house note added to what you already owe the bank may see it as a risky loan and thus deny your loan application.  Some companies may look at the divorce decree, the deeds, and certainly your income (some people can easily afford multiple home) to determine whether a loan is available to you.

In short, there is no easy way to divide a home in today’s market when it has no equity but you still have options.

Contact Shawn Rudisel today for a free consultation to discuss your Houston divorce property division issue.

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