Do you have to sell your house in a divorce?

Daniel Abadi

Being married to someone means sharing everything, including both assets & debt. For many couples, their home represents their largest and most important asset. This is why when a marriage is terminated it can be especially tricky to sort out what to do with the marital home (the house the couple used as a primary residence).

Whose property is it?

The first thing to know when handling such a situation is whether the house is marital property or separate property; in other words, does it belong to both spouses or just one. Separate property is anything acquired before the wedding, while marital property is anything purchased by either or both spouses during their marriage. If the house falls under the definition of separate property then the person who owns it has a right to it, but if the marital property seems to be the case it can be more complicated to divide.

The goal when settling possessions during a divorce is to divide them as fairly as possible. That said, depending on the circumstance there are several options to consider.

  • Buy out: One spouse could decide to buy the other spouse’s interest in the property, making the spouse who decided to buy the sole owner. A buy out could happen for a lot of reasons, like providing consistency for the kids; in the midst of their family being separated, staying in their childhood home can be a much-needed anchor. A buy out also saves the trouble of moving to a new school district and the children making new friends.
  • Co-own: though not common, there are cases in which a divorcing couple both choose to maintain ownership of their marital home. This can be done to wait for housing markets to rise, to sell for more money at a later date. It’s also another way to keep kids in their childhood home, in the case that one of the spouses doesn’t have the resources to buy out their partner. It’s worth noting that the proceeds of selling a house that hasn’t served as a primary residence for at least 2 of the last 5 years are subject to capital gains taxes, and may cost a considerable portion of the profits.
  • Sell: there’s also the straightforward solution of selling the house and splitting the proceeds equitably. This allows the couple to liquidate whatever value is in their home and divide it and is usually a great option when the couple doesn’t have any children or a special connection to the house.
  • Divide assets: In the case that their marital home isn’t the couple’s most valuable possession, dividing their list of assets can offset the need to sell the house. One person getting the house wouldn’t be a problem if the other spouse received something of at least equal value.

Bottom line

You don’t necessarily have to sell your house in a divorce. It all depends on the circumstances. However, there are many cases in which selling is the best choice, and the implications like moving out and finding a new place can be stressful in what is already an unpleasant situation. For people who need to sell but aren’t ready to move out, a rent-back agreement is a perfect fit. What that means is selling your home only to rent it back from the new owner; this allows you to access all of the equity and divide it with your ex-spouse, and then continue to live in the same home by paying rent.

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