EP 16: Should You Keep Your Home When Divorcing? (Part 2)

Welcome to the sixteenth episode of Divorce and Your Money Podcast. Your host, Shawn Leamon, MBA and a Certified Divorce Analyst, continues his discussion on how to handle the marital home following a divorce.

Shawn discusses the three main options involving your marital home: you can sell it, negotiate a buyout, or maintain joint ownership of the home.

Selling the house is a good option for people who want a clean start from their previous life. Many issues need to be considered, however, which have been discussed in the previous episode. You can pursue this option while you are married or after the divorce is finalized. Both have different capital gains tax consequences.

Capital gains tax is the difference between what you paid for the house and what you make from selling it. It doesn’t include the mortgage. If you are still married, you can have up to a $500,000 capital gains exemption in the sale of your primary residence, while a single person will have a $250,000 exemption on the capital gains tax. Both are subject to certain conditions. The tax percentage you have to pay depends on the capital gains tax rate at that time. You could save a lot of money if you sell your house while the divorce is still in progress, especially if neither one of you wants to keep the house.

The second option is common: one spouse gives up their ownership in the house in exchange for cash or other assets. It is buying out one spouse’s share in the house. Many things can be considered as assets during this negotiation. If you decide on this course of action, you need to be sure the mortgage is properly handled. The spouse whose name is on the mortgage and who owns the house will need to pay the mortgage. It complicates the process and needs to be considered during negotiations.

The third option is when both spouses agree to keep joint ownership of the house, which could be a very relevant option for practical purposes. Various arrangements can be agreed upon, and you should be aware of the consequences of this option. You could actually end up being financially married to your ex-spouse even after divorce.

Key Learning Points:

  • You can sell it, negotiate a buyout, or maintain joint ownership of the home.
  • Selling the house has different capitals gains tax consequences, depending on where you are in the process.
  • Married people get a $500,000 capital gains exemption in the sale of the primary residence, while a single person gets a $250,000 capital gains exemption.
  • One spouse will give up their ownership in the house in exchange for cash or other assets in a buyout.
  • Be sure the mortgage is handled properly, and refinanced if necessary.
  • Keeping joint ownership of the house could be a very relevant option for practical purposes but can also have complications.

Thank you for listening to the Divorce and Your Money Podcast. We hope the show helps you through one of the most difficult periods of your life. Shawn Leamon is also the author of Divorceand Your Money: The No Nonsense Guide. One-on-one divorce coaching services are available at www.divorceandyourmoney.com.

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Shawn Leamon, MBA, CDFA

Dallas, Texas

Shawn C. H. Leamon is Managing Partner of LaGrande Global, a firm that helps successful families manage large financial transitions like divorce, inheritance and selling a business.

He earned his Bachelor of Arts from Dartmouth College, double majoring in Economics and Philosophy, and his Masters in Business Administration at Spain’s IE Business School.

Before founding LaGrande Global, Shawn helped manage $1.1 billion in client assets at Bernstein Global Wealth Management. He also worked as a credit research analyst at J.P. Morgan. He is a Certified Divorce Financial Analyst, and he has been an advisor to numerous high-stakes divorce cases.

Shawn is the author of two well-received finance books: Managing Private Wealth: Principles, and Divorce and Your Money: The No-Nonsense Guide, both published in 2016.

In his spare time, Shawn is an ultra-endurance athlete and has competed in events as long as 24 hours. He is an Eagle Scout and a member of the Alumni Board of Greenhill School.