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Keep or Sell the Family Home During Divorce?

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The decision about whether to keep or sell the family home during divorce can turn into an emotional power struggle and an ongoing source of conflicts and negotiations between a husband, wife and their mediator or attorneys during this highly charged time of making life-altering decisions.

Since divorce causes many disruptions to all the parts of a person's life, it's not surprising that most people want to stay in their current home for security, continuity and practical reasons and to keep their children's lives as stable as possible during this challenging time.

Reaching a mutual decision about whether to keep the family house or sell it is a complex decision which includes emotional, financial and tax consequences so it's wise to consider the overall situation and consult with experts who can provide you with objective advice about what the financial and tax consequences will be.

In some situations, there is no choice about whether to sell the home or not. During my own divorce, a family court judge I'd never seen issued a bench order that we list our marital home for sale within 30 days just 3 months into the divorce process due my husband's job contract coming to an end along with his insistence that he wanted to start a new business rather than look for another similar career position.

I suddenly found myself having to find a rental home right away for myself, 3 kids and a big dog that was also within my children's school district and on their bus routes. This move ended up costing me just as much in monthly rent payments as our much larger marital home payments had cost per month even though the rental home was much smaller.

If you are faced with the decision about whether to keep or sell the family home due to divorce, here are 5 Smart Questions to Ask:

1. What are your housing options where you live? Will the cost of the house payments be about the same, more or less than a similar place for rent when you figure in the tax deductions for mortgage loan interest? Are there rentals available where you live that meet your needs and are in the same school district? Can you afford the costs associated with moving and/or storing items if you move into a smaller home?

2. Do you know what your house is worth in your current real estate market? Are you under water when it comes to home equity or can you afford to pay off all of the mortgage loans on your home plus cover the costs of selling it and moving? It's wise to consult with an experienced realtor to find out what comparable homes are currently selling for near your home and what you can expect to net from a sale. You may also benefit from getting an appraisal done which will also help to determine current market value.

3. Can you really afford the house on your own when the divorce is over? Deliberating over this is often truly painful. No matter how much you may WANT to stay in the home, your financial situation will likely become much tighter following divorce. Do you know if you'll be able to qualify on your own income to refinance the mortgage into your own name? Rising real estate taxes, utility bills, home repairs, maintenance and landscaping can chip away at your new single person budget, making it harder to save for other things as you start your new life.

4. Could you be better off taking other assets in exchange for your share of the family home? The tax man cometh and the tax man then taketh away when it comes to selling homes, retirement funds, stocks and other assets. If you keep the house now and later sell it on your own, you could end up with a hefty capital gains tax bill depending on how much your home sells for at that later time. To figure out how taxes will figure into a settlement agreement, it could be helpful to meet with a tax accountant or Certified Divorce Financial Analyst to figure out the various short and long-term tax consequences that could result from selling or trading both assets and liabilities during divorce.

5. Consider the many benefits of making a clean break by selling the marital home. There won't be any worry about whether or not either person can qualify on their own income to refinance it into their own name. You can use your share of the profit from the home sale to prioritize your new financial goals. You won't find yourself in an upsetting flashback in the kitchen one night, remembering that terrible fight you had right near the sink. There won't be any reason to worry about your former spouse inviting his new love interest into the home you had previously shared together.

Being open to new possibilities may lead you to downsize, buy a fixer-upper, try an entirely different floor plan or move into a new community where you and only you now have the keys to unlock your front door.