Divorcing and selling a home are both financially taxing and emotionally tiring situations. It is easy for a person to become so overwhelmed with emotion that they start to make decisions that are not based on sound reasoning. This can lead to long-term negative consequences that they later regret. If you live in Texas, own a home, and are going through the divorce process, there are a number of factors that you, along with your divorce lawyer, should consider when deciding when to sell your home or if you should sell it at all.
Is Your Home Community Property?
The state of Texas is a community property state. This means that if you and your spouse purchased a home after you were married, the state will likely consider the home to be community property. Even if one spouse purchased the home prior to marriage but community funds, such as a joint bank account, were used to pay for improvements on the home, cover the mortgage, or pay for other expenses related to the home, it is likely that the state will consider the home to be community property. This means that both spouses will need to sign any paperwork before the home is sold.
The court may decide that the home is property that is “separate in nature.” This means that the spouse who purchased the home prior to marriage will receive all of the proceeds from the sale of the house. However, the other spouse may be entitled to compensation for community funds, such as those from a joint bank account that were used to cover expenses related to the home.
For the property to be deemed “separate in nature,” your attorney will need to be able to track and itemize all of the funds that went to paying for the home during the marriage. If it becomes apparent that community funds were primarily used to cover these expenses, then it is likely that both divorcing individuals will have the right to some form of compensation from the sale of the home. Talking to your divorce lawyer is a great way to know how the courts will likely classify your home.
Divorce, Home Sales, and Taxes
Selling your home for a profit prior to divorce may generate some tax responsibility. How these taxes are divided can be discussed during the divorce proceedings. There may also be capital gain deductions that you are eligible for. You and your spouse will need to discuss how these deductions will be used when filing taxes.
When individuals sell their home prior to filing for divorce, they may choose to file their taxes jointly one more time. If they sell the home after filing for divorce, it’s more likely they will file separately. There are a number of financial advantages that come from filing your taxes separately while selling a home. A good divorce attorney will discuss the effect that your tax obligations connected to the sale of a home can have on your long-term financial well-being with you as you are making these decisions.
Selling the House after Divorce
Some spouses, after examining the housing market. realize that right now is not the best time to sell the home. They may come to an amicable agreement whereby they will wait to sell the house until the market or their personal financial circumstances are more favorable. A good divorce lawyer may recommend that both will have the title of the home.
There are a number of pros and cons to selling a house before or after divorce. It is good to take the time to get reliable advice from your divorce attorney and financial advisors to make a good decision that will have positive effects on your long-term financial future.
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