When you married your spouse, you thought it would last forever. As fate would have it, your mortgage has endured longer than your marriage. Between health care, retirement, alimony, child support, and division of assets, determining what is to become of the home can be extremely difficult. Here are some tips on navigating the real estate side of a divorce.
If you have a credit score, you are going to want to protect it. A credit score above 640 can be a big help when buying your next home or refinancing (post-divorce). The best way to prevent changes to your rating is by closing all joint accounts (banks and credit cards). If you can’t close the joint accounts, freezing the accounts can prevent an adverse change in your credit score. If your spouse had a stellar rating and yours is non-existent, it would be prudent to open up lines of credit in your name. This way, if you need to buy or refinance a home, you have the means to do so.
Taxes and Home Ownership Options:
Generally speaking, there are three possible primary outcomes regarding “custody” of the house.
Option number one is where both parties agree to sell the home, split the proceeds and pay taxes on the profit.
Option number two is where one party remains in the home and the other leaves. This option can have tax consequences specific to your situation so be sure to consult with a tax professional before making a final decision.
Option number three is where the home is underwater, and the sellers can’t afford to pay the difference. In this instance, the seller’s will either need to rent the house until they have accrued enough equity to sell, or they will need to negotiate a short sale or a deed in lieu. A deed in lieu is where both parties agree to give the home back to the bank voluntarily. If negotiated properly, a deed in lieu can have little to no impact on your credit score. A short sale occurs when the bank is willing to sell the home for less than is owed. Be aware that if your bank is prepared to perform a short sale or a deed in lieu, you could be taxed on the difference between the outstanding loan balance and the purchase price. If the bank is unwilling to conduct a deed in lieu or a short sale, the home could go into foreclosure. Both a short sale and a foreclosure will have negative impacts on your credit score.