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721 - What Happens to the House?Often the house divorcing couples have owned and lived in will be the single largest asset of the marriage. In most cases, they own the house jointly, and they owe money on the mortgage jointly. Often one spouse will be moving out, and the other will plan to stay in the house and continue making the payments. At some point down the road, the house will be sold or refinanced, but often that doesn't happen right away. Here are some things you need to think about if you're planning that kind of arrangement. First, the spouse staying in the house needs to make sure he or she can afford the mortgage payments. In almost every case, people who get divorced underestimate what it's going to cost them to live once the divorce is finished. You need to develop a comprehensive budget before you lock yourself in to a divorce settlement and make sure you really can live within it. The spouse who's moving out needs to think through what that does to his or her credit. Even though you won't be living in the house any more, the lender still has your name on the loan, and if your spouse doesn't pay, the lender could come looking for you. When that happens, the lender won't care much that you haven't lived in the house ‑ the lender wants its money, and you're still obligated to pay it. Even if your spouse is absolutely faithful in making the mortgage payments, though, there's another possible problem: because you still owe a great deal of money on the house, it may be difficult or impossible for you to borrow to buy another house or to make another large purchase until you're off the loan entirely. For years, divorcing couples struggled with the issue of capital gains on the sale of their house. That's changed now, though. Capital gains tax on the sale of the house is simply no longer an issue for most people going through divorce. Any taxpayer who owns an interest in the house where he or she has lived for two of the last five years can exclude up to $250,000 of gain on the sale of the house, $500,000 for a married couple. The impact of the exclusion is that the taxpayer doesn't have to include it in taxable income and therefore won't have to pay tax on it. Alabama Family Law Center serves clients who need to get through divorce and who are able to be reasonably cooperative. The goal is for both spouses to survive divorce and move on with their lives with some money in their pockets and their dignity intact. No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers. If you'd like to make an appointment with me, call 205-979-6960. Or you can click here to return to the Divorce Line. |
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