If you're going through a divorce, deciding how to divide the home you share with your spouse can be one of the more complicated conversations you'll have. Unlike other assets that must be divided, your home often has many emotions and memories tied to it. For example, if you've raised children in it, you may not want to uproot them from their environment. On the other hand, it is sometimes easier for both spouses to start fresh somewhere else.
Only you know what's best for you and your family from an emotional and practical perspective. Nevertheless, you have three primary options available to you that may impact your decision from a financial standpoint.
1. Sell the home and divide the proceeds.
If you're able, selling your home and dividing the proceeds is typically the easiest and cleanest way to split any equity that has accumulated. However, this approach—like the other options—comes with additional considerations. If you make money on the sale, you may be subject to capital gains taxes. In addition, you'll need to make sure your credit and finances are stable enough to find a new home, whether you decide to rent or buy again.
2. One spouse buys out the other spouse.
If one spouse wants to stay in the home, it usually makes sense for him or her to buy out the other spouse. To do so, you'll first want to determine the current value of the house to calculate the buyout price. You'll also want to decide whether this price will be adjusted for future selling expenses and/or future capital gains on the sale of the home.
In addition, if your spouse buys your share of the home, your name will be removed from the deed but may stay on the mortgage. It's important to understand how this can affect your credit, especially if your spouse misses any payments. Sometimes the best option is to have the spouse that stays in the home refinance the mortgage—assuming they have the credit and assets to do so—so that you're completely relieved from any future financial obligation.
3. Maintain joint ownership of the home.
If you have children that you want to stay in the home until they reach a certain age, maintaining joint ownership until that time can be the best solution. You'll want to determine how to split household expenses, including mortgage payments, home improvements and any major repairs, since these can increase the cost basis of the home. In most cases, the spouse who lives in the home assumes responsibility for taxes, utilities, minor repairs and insurance. However, you'll want to come to an agreement with your spouse that makes the most sense given your financial situation.
Whether you and your spouse decide to sell your home now or at some point in the future, there are many moving pieces involved, such as fluctuating property values, moving interest rates and taxes. While it's important to first make sure you accommodate the needs of your family, you should also consult a legal, tax or financial advisor to make an informed decision.