Selling a House After a Divorce Agreement

 

When it comes to divorce, the process is never easy, and there are many reasons couples get divorced. Among the top three are a lack of commitment, infidelity, and excessive conflicts according to Divorce Answers. But no matter the reason, the divorce’s impact has massive ripple effects—especially when dividing up a lifetime of assets.

In most divorces, both parties agree to who keeps the house and who will buy the other party out. Another option is to sell the home and split the proceeds before the divorce decree is issued. In the first scenario above, where one spouse keeps the home—buying out the spouse’s equity can give you more options, like selling the house after the court issues a divorce decree.

What is a Divorce Settlement Agreement?

 

Before discussing how to sell your house after a divorce agreement, it’s essential to define a divorce settlement agreement. After all, it’s not only a critical first step but a written binding contract that is signed by both spouses or partners in a common-law marriage.

Each spouse’s signature attests to their agreement to everything outlined in the dissolution of their marriage. Essentially, the items and actions are topics paramount to the life of a marriage.

Often the most contested strife shines a bright light on child custody, child support, alimony, and property division. Each of these topics holds an extraordinary value to each party in a divorce agreement, leaving one or both parties feeling misled at times. Even children can feel the strain of a divorce when pulled in different directions. In the end, the family house is a point of contention. Trying to meet on common ground isn’t easy for even the calmest person.

How it Matters for Selling My Property

Whether you sell your home, before or after the divorce decree, there is much to consider. First and foremost, deciding whether to keep the house for whatever reason, kids, taxes, or convenience. The crucial step is ensuring you and your partner have agreed to the terms as outlined.

Let’s say you buy out your spouse’s ownership in the home, with plans to sell in the future while the kids are still in school, can be best for the children. No matter the advantage, sometimes, there are reasons not to sell.

The real estate market can be volatile. So renting the house out is a smart financial move if you cannot buy out your partner’s interest in the home. Another caveat to not selling is a down market; both parties—agreeing to the terms—decide to sell the house when the market improves after the divorce is final. When holding onto a home in a divorce, there is a great deal to consider, but sometimes divorces can be quite a challenge, leaving some discussions overlooked.

What Am I Not Thinking About?

 

Divorces complicate not only family dynamics but can make a mess of the household finances too. You’ll need to make sure you’ve hired the best divorce lawyer should either of you change your mind about the agreements.

If you both use the same attorney, it’s best to reach out to another divorce attorney to review the divorce agreement. Remember, divorce agreements are legally binding contracts and are examined by a judge for fair terms before incorporating those agreements into your divorce decree.

Doing What is Best for Your Family

Divorces are emotionally charged and sometimes necessary for the well-being of the family. There is a lot to consider for both parties, which begins with your family. Couples rarely go into a marriage, thinking that divorce might be the outcome.

2020 U. S. statistics on divorce rates since September 2019 have doubled. So if you find you and your spouse are arguing more without resolution, be sure to reflect on everyone who will be affected by your decision and whether those impacts are beneficial to the entire family and you.

Should Your Name Stay on the Deed and Mortgage?

Divorces take an emotional toll on your mental and physical well-being, and now, you have one more item to tackle. Despite being overwhelmed already, now there is one more critical spousal discussion, the house. Since you both must agree on dividing your marital assets, the home is no different. The house will likely be the biggest asset you bought while married, so to finalize your divorce settlement agreement, you both must agree to the selling terms of this asset.

Few things in this life are more important than the home we chose to live in and raise a family. Perhaps the most challenging discussion yet will impact everyone in the household. If you and your spouse had children, you should include them in this discussion above all others. Ask your children questions, like, how would they feel moving to a new school district, leaving behind their friends? Are they open to living in a new home, possibly in a new zip code or city?

Even if you and your spouse never had children, this discussion deserves face time. You’ll need to reach an agreement on who gets to keep the home. More importantly, which of you can afford to buy out the other spouse’s equity in the house? Both parties in the divorce must sign the divorce settlement after recording the spouse who will retain the home and purchase the other spouse’s equity in the home.

The spouse keeping the home will then apply to have the house refinanced using only the one name. After closing on the new mortgage, the deed will reflect the spouse’s name on the mortgage title. Once completed, that spouse will have the option to sell the home without any conflict of interest, except you may be responsible for capital gains.

Taxes

Another important consideration in keeping your home is affording those property taxes or paying any capital gains penalties should you decide to sell. Before you volunteer to buy out your spouse’s equity in the house, talk with your lawyer about any tax considerations if you kept the home. If you can, try and find a lawyer that specializes in both divorce and tax law. You don’t have to keep the house, even if only to keep the kids in the same school.

Your State’s Property Division Laws

Just as there are taxes to consider, you need to understand your state’s laws regarding property distribution in a divorce proceeding. Most states in the U. S. follow “equitable distribution laws,” while only seven states in the United States comply with “community property laws.”

States adhering to equitable distribution laws want to divide the property between spouses fairly and equitably. In states abiding by community distribution laws, courts split assets 50/50. An excellent place to begin researching your state’s property division laws is on HG.org Legal Resources for property division laws in your state.

How Does this Impact the Sale of Your Property?

Property distributions can sting for married couples that are unable to agree on property division. In those cases, a judge will invoke your state’s property division laws and incorporate the agreement into the final divorce decree. So if you live in a state with equitable distribution laws, divorce agreements are assessed case-by-case. In community property states, however, divorce settlement agreements consider property and equity acquired throughout the marriage.

Who Gets What is Inside the House?

According to HG.org, courts often count community property under the law in those states, for both party’s income, personal property, furnishings, property holdings, and then consider where the exceptions lie. Such as individual gifts and inheritances. Despite the 50/50 rule of law, equitable distributions deemed “valid, fair, and equitable,” include pensions and 401Ks. But again, speak with a divorce lawyer before moving forward.

Selling Steps After Divorce?

 

When selling a home, logic dictates you speak with a real estate agent, but you need to talk with a lawyer specializing in tax law when talking about divorce. The reason being, your spouse is entitled to a portion of the sales proceeds. But before you can divide up those dollars, all closing costs and brokers’ fees will come out first. Your lawyer can advise you on any capital gains tax.

With or Without an Agent

There are many reasons to sell your home on your own. The most significant incentive is you pay no fees to the real estate agent. Just keep in mind, your divorce is a legally binding contract. Hiring a real estate agent that you both agree on will help snuff out any fears about dishonesty. Your home should be listed on the Multiple Listing Service (MLS) database accessible to buying agents.

Real Estate Agent Pro/Cons

Working with a real estate agent can take the guesswork off your hands. You don’t have to do any marketing, and you don’t have to take time out of a busy workday to show the house. The point being, you’ve already gone through so much with the divorce proceedings. Now it’s time to grieve and take care of yourself. To help you make the best decision, here are reasons to consider hiring a real estate agent and be sure to ask them the correct questions before hiring them!

Pros

• Listing on the MLS database
• Someone to show your home for you
• A skilled professional working for you to get the dollar amount you want for your home

Cons

• Paying the Realtor a commission
• You’re not the Realtor’s only client
• You’re on someone else’s timeline

FSBO Pro/Cons

If you’re considering selling your home yourself, as a For Sale By Owner (FSBO), take time to research the commitment you could bear. Zillow is used most often by individuals looking to list their homes FSBO. The company also has some great resources that can answer more questions. But for now, you can weigh these top options.

Pros

• No commission to pay
• Overseeing the listing details and pricing
• Scheduled showings on your time

Cons

• Homes often sell too low if they don’t get the right exposure to buyers
• Managing a listing is time-consuming
• You may have to pay the buyer’s agent a commission

We Buy Houses for Cash Companies Pro/Cons

Unlike FSBO, companies that use the phrase, “we buy ugly houses for cash” are looking to flip homes. While this option may seem quick and easy, which it is, it doesn’t necessarily have your interests in mind, depending on your goals. Here are the ups and downs to consider before deciding to work with companies or individuals buying homes for cash.

Pros

• No need to make any home improvements
• Successful turnaround time under challenging circumstances, like a divorce
• Fastest means to a sale

Cons

• Might not sale the home at fair market rates
• Repairs are bargaining chips to low the price of the home
• Lose out on competitive bids

iBuyers Pro/Cons

An up and coming industry, referred to as iBuyers, these companies help take the guesswork out of the transaction. There’s no need for talking in-person or hiring a realtor. There are many iBuyer websites; one such website mentioned earlier is Zillow Instant Offers but the largest one is OpenDoor. It’s best to do your homework first to ensure you’re weighing all the options equally.

Pros

• Convenient
• Fast turnaround
• No renovating

Cons

• Paying high fees that range from 7% to 13%, in comparison to realtor fees ranging from 3% to 6%
• Most sell below market price
• Realtors use these companies too, making them your competition

Hire an Attorney

We covered a lot of material, and there’s one consistent theme, make sure you talk with an attorney. Many attorneys specialize in multiple areas, just like doctors. They have specific skills in negotiating your divorce agreement, helping you navigate tax laws, as well as accounting and mortgage laws. For this reason, it’s best to find an attorney that specializes in all three areas. The tricky part is figuring out how attorney fees break down.

The legal industry’s billing is so complicated; you might consider reading how law firms and attorneys figure their billable hours, Understanding Legal Billing Increments and Billable Hours.

Determine an Asking Price

Let’s face it, when it comes to attaching a value to your house, there’s a lot of unwritten rules. As a seller, you want the best price for your home. On the other hand, buyers want to purchase your house below the listed value, maybe even as low as 10% below your asking price. A good starting point to finding out the value of your home is your county assessor’s office. You can then talk with a realtor, familiar with current market trends and the local housing market’s financial health.

Prepare Your House for the Market

After you’ve decided on a listing price and how you want to market your home, the next step is staging your home, which is an excellent time to have your house inspected. Before listing your home on the market, you’ll find out what needs replacing, fixed, and updated. If you decide to work with a realtor, they could save you money by advising on improvements inside and outside the home.

You should also stage your house for viewings before listing it on the MLS. You wouldn’t want to view a home that has stacks of paper everywhere or is disorganized. Keep things simple for yourself and don’t stuff everything in one closet, thinking, “no one will open this door.”

Reviewing Offers, Escrow, Closing

Your realtor should agree on the earnest amount. Earnest money keeps the buyer accountable to the contract both parties agreed upon. A title company will set up and manage an escrow account until closing. Most contracts list contingencies, like “earnest money will remain in escrow until closing,” often with a deadline date. A lot of home inspections clear without issue, but problems can arise, which the seller will either fix or risk forfeiting the buyer’s earnest dollars.

At closing, the title company will collect property taxes and funds for homeowner insurance, which gets deposited in the escrow account. The mortgage company then sets up an escrow account to pay annual taxes and homeowners’ insurance to protect their interest in the property.

How to Divide the Proceeds

Dividing the proceeds from your home’s sale depends on your divorce agreement and possibly the state you live within. Provided you and your spouse amicably agree, then the profits divvy according to the divorce agreement, either before or after a court divorce decree.

What If One Spouse Wants to Sell the House and the Other Doesn’t?

 

If you and your spouse were unable to agree on selling the home, a court order could be issued and decided for you both. Courts prefer couples to settle outside the courtroom and could order the attorneys into arbitration proceedings.

If a spouse wants to keep the house, they can offer to buy the other spouse’s equity in the home, making the resolution simple. If the spouse can’t afford to buy out the other spouse, it becomes clear that selling the house and dividing the proceeds is the better option.

Learn more about selling your home and saving thousands with ISoldMyHouse.com
 

Alternatives to Selling

 

Alternatively, the spouse could agree to keep the house and rent it out. There are a variety of reasons to hold onto a home, which include a down market. If both spouses have existing knowledge of a downturn in the housing market, there’s a chance they might agree. If so, the couple would become tenants in common. Your lawyer should be well-versed in mortgage law and be familiar with the current trends in the local housing market.

Co-Own the House After a Divorce

Once a divorced couple decides to keep a home, they become tenants in common. Meaning, neither spouse can sell the house without first informing and obtaining consent from the other party.

Is Cohabitating a Good Idea?

The laws on divorce are a bit unclear for couples who cohabitate after the divorce. In many cases, it’s a financial burden on one or both spouses if children are involved. In situations where one spouse is paying child support and alimony, there is reasonable cause to cohabitate.

Courts could, however, consider cohabitation a financial relief to the spouse receiving alimony by reducing the amount on the support obligation of the spouse paying child support.

Couples with no children can also choose to cohabitate after the divorce and have great success.

But if the relationship were to fail after cohabitating, the couple must reconcile financially, according to the laws with the state the couple resides, and re-address child visitation schedules. Couples who cohabitate after divorce also risk one or both getting jealous, reigniting conflict.

Emotions run high in most divorces, and living together afterward is risky. You should consider the impacts and emotional toll it could have on your children, friends, and extended family if it doesn’t turn out well. Divorced couples need to weigh the impacts of their decision and do their best to recognize and address the ripple-effects that come from making such an unusual decision.

Should We Rent to Tenants?

Another option for divorced couples who still own a property they once shared is to rent out the house. If the rents in your market are high enough you can equally divide any profits after paying the monthly mortgage. It’s a solid solution but does carry some risks but they can be mitigated if you are a proactive landlord. There is also the added burden of still having to manage a large asset with your ex-spouse and considering the circumstances you may just want a clean break from each other.

Final Thoughts

Marriages end for many reasons, and couples have a great deal to consider when dissolving their marriage. Divorce paperwork is a tedious process; remember, emotions are already running on high. If you and your spouse can come to an amicable resolution, it’s best, but no one expects that of you.

The process can take months, so consider all options before making this costly decision. Talk with divorce lawyers specializing in taxes, accounting, and mortgage law. Research what options you both have and take time to interview realtors if necessary. Divorces are not easy for anyone. It’s not a process you need to do alone. Let the lawyers take this burden off your hand. Doing so allows you to focus on what is essential to you and your family’s well-being.