What Happens to the House in a Divorce

Next to the children, the division of property is probably the most important part of the divorce proceedings. This is especially true when there is ownership of a house before the divorce proceedings are begun. There are several options open to couples who own a house when they divorce, some are more equitable than others. However, it is essential to make certain each party is compensated for his or her ownership in the house following the divorce.

The most common method of disposing of the equity in the house in a divorce is to sell the house and distribute the profit between both parties in the divorce action. While selling the house in a divorce and distributing the profits is the perfect solution, it may not be the best one, especially if there are children involved. They will suffer enough because of the loss of one of their parents from the home, so in many cases the parent who retains custody of the children also retains the house in a divorce.

If the party who is awarded the house in the divorce is unable to obtain a mortgage at the time of the divorce, they may choose to sign an agreement that states the house must be sold when the children reach the age of majority (18). The problem with this method is it can create a substantial tax burden on both parties in the case of children who are very young at the time of the divorce. The reason for this is the $250,000 exclusion on capital gains taxes states both homeowners must live in the home for two of the previous five years. This can create a substantial tax burden on the party that was awarded the house in the divorce and chooses to sell it in less than four years following the divorce.