Posted on: 1 February 2021
Do you co-own a home with your soon-to-be ex-spouse? For divorcing couples with small children, the struggle about what to do with their matrimonial home can be complex when neither party can afford to buy out the other spouse's share of the home. In this case, the only way to avoid selling it may be to continue to jointly own it.
If you and your spouse are considering this move, you'll need to decide on a few key points and include them in the divorce agreement. Here are four items to address.
1. When You Will Sell It. Some co-parents agree to keep the family home long enough for children to reach a milestone (like finishing school) or for a certain number of years. You may also need to arrange a sale within the six-year time limit for Section 1041 tax benefits. By including this timeline in the divorce settlement, you ensure that it's encoded in the court orders as a commitment pursuant to the divorce.
2. How to Manage Finances. Homeownership comes with expenses, of course. And when only one party lives in the home, crafting a fair agreement to share those expenses is key to successful co-ownership. Should one party pay certain types of expenses, such as the mortgage or taxes? Or will you split them equally? How will you ensure both parties pay their share? And how will you handle unexpected (or expected) repairs?
3. What to Do If Plans Change. Divorced spouses co-owning any property can be more challenging than expected. If things aren't working out, what could trigger a sale instead? How will you agree to this new plan? Planning for the possibility of a change of circumstances (or heart) helps mitigate stress if it ends up happening.
4. How Tax Benefits Will Work. Homeownership comes with a few tax benefits, both annually and when the home is sold. You may choose to alternate the use of expenses for a tax deduction. Alternatively, some couples allow one party to use these deductions every year, either as compensation for the arrangement or because they carry more of the burden. Don't forget the tax benefits of the homeowner exclusion when it's finally sold.
While clarifying these four points may take some work, both you and your future ex-spouse will benefit from having them within your divorce settlement paperwork. You reduce the risk of conflict later on and will be better armed to both co-parent and co-own successfully. Learn more about sharing ownership after divorce by meeting with a divorce lawyer in your state today.Share