You’re Getting a Divorce in Arizona, Are You SURE You Want the House?

Thu 6th Oct, 2016 Arizona Community Property Laws

Deciding Whether to Keep the House in an Arizona Divorce

When you find yourself facing divorce, it often feels as though everything you thought you knew about your life and your future is suddenly flipped upside down and the struggle begins to make sense of the pieces that remain.

In an effort to retain some semblance of normalcy, it’s common to want to stay in the house that you are used to, especially if there are children involved.

While it is tempting to want to lean on the stability of staying in the family home, be aware that it may also be the most costly mistake you can make.

Buying Out a Spouse’s Equity in the House

First and foremost, a house is somewhere to live. It does NOT provide any income to support your lifestyle. If you and your spouse lived there for a long period of time, it’s highly likely that there is a fairly large chunk of equity trapped in those walls.

If you are awarded the home in the divorce, it could be the largest asset in the settlement. Let’s assume the home has a market value of $400,000 and there is $300,000 in equity.

As marital property, half of that equity is yours, but the other half is your spouse’s. So if you are to keep that home, then a full $300,000 of your settlement will be tied up in that property.

That same money could generate over $13,000 a year in income if it were invested conservatively. And don’t forget about the costs of upkeep and maintenance that will increase the amount of income you’ll need just to make ends meet.

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Future Capital Gains Tax Implications of Keeping the House in a Divorce in Arizona

In addition, don’t forget about the potential tax impacts down the road. If you were to sell the house while you are still married, the $300k capital gain would fall under the marriage exclusion of up to 500k and be tax-free.

Once you transfer that home into your own name, if you sell it now with a gain of $300k, the personal exemption is only $250k so you will owe capital gains tax on 50k of gain or $7,500 and even more if you’re a high wage earner.

Divorce is difficult but you also have an opportunity for a fresh start and getting off on the right financial footing is essential to your future.

To be certain that you understand all of the ramifications of any property settlement you are considering, bring a Certified Divorce Financial Analyst (CDFA) into your team to shine the light onto some of these issues.

You only have one chance to get your settlement right. Take the time to gather information and make sure you are doing the right thing. It will be the best decision you ever made.

By: Nancy A Hetrick, MAFF®, CDFA®

www.SmarterDivorceSolutions.com

Hildebrand Law, PC Voted Best Divorce Law Firm in Arizona in Arizona Foothills Magazine

If you have questions about wanting the house in an Arizona divorce case, you should seriously consider contacting the attorneys at Hildebrand Law, PC. Our Arizona community property and family law attorneys have over 100 years of combined experience successfully representing clients in community property disputes and family law cases.

Our family law firm has earned numerous awards such as US News and World Reports Best Arizona Family Law Firm, US News and World Report Best Divorce Attorneys, “Best of the Valley” by Arizona Foothills readers, and “Best Arizona Divorce Law Firms” by North Scottsdale Magazine.

Call us today at (480)305-8300 or reach out to us through our appointment scheduling form to schedule your personalized consultation and turn your Arizona community property or family law case around today.

Frequently Asked Questions About Keeping the House in an Arizona Divorce

Should I keep the house in an Arizona divorce?

Keeping the house may provide stability, especially when children are involved, but it is important to consider the full financial impact before agreeing to keep it. You should evaluate the home’s equity, mortgage, taxes, insurance, maintenance costs, refinancing requirements, and the other assets you may give up in exchange for the home.

Is keeping the house a good idea after divorce?

Keeping the house can make sense in some divorces, but the decision should be based on affordability and the overall property settlement rather than emotional attachment alone. A home can represent substantial equity while also requiring significant ongoing expenses. Comparing the house with retirement accounts, investments, cash, and other marital assets can help you understand the long-term financial consequences.

How is a house divided in an Arizona divorce?

If a house is community or jointly held property, Arizona law generally requires the court to divide the property equitably. The court can award the home to one spouse while accounting for the other spouse’s interest through other property, a payment, or other arrangements.

What happens to the equity in a house during an Arizona divorce?

Home equity is generally the home’s value minus the outstanding mortgage and other applicable liens. If the equity is community property, it becomes part of the marital property division. For example, if a home is worth $500,000 and the mortgage and other liens total $300,000, the approximate equity is $200,000 before considering transaction costs and other adjustments.

Do I have to sell my house when I get divorced in Arizona?

No. Selling the home is one possible solution, but it is not necessarily required. Depending on the circumstances, one spouse may keep the home and compensate the other spouse for their interest, the spouses may agree to sell it, or other arrangements may be possible.

What should I consider before keeping the house in a divorce?

Before deciding to keep the marital home, consider:

Current market value and estimated equity
Mortgage balance and interest rate
Whether refinancing will be necessary
Property taxes and insurance
Repairs and ongoing maintenance
Your post-divorce income and budget
Other assets you may give up to keep the house
Potential tax consequences
Whether the home is likely to meet your long-term housing need

Can I refinance the house after divorce?

Refinancing may be necessary if one spouse needs to remove the other spouse from the mortgage or obtain financing to pay the other spouse their share of the equity. Whether refinancing is possible depends on factors such as income, credit, debt, the home’s value, and the lender’s requirements.

Are there tax consequences to keeping a house after divorce?

There can be tax consequences depending on what happens to the property and when it is eventually sold. Federal tax rules provide exclusions for qualifying gains on the sale of a principal residence, subject to eligibility requirements. Special rules can also apply to transfers between spouses or former spouses as part of a divorce.

Because the tax consequences can depend on your ownership, residence, filing status, basis, and timing, consider consulting a qualified tax professional before making a decision about the house.

Does transferring the house to a spouse during divorce trigger capital gains tax?

A transfer of a home to a spouse or former spouse as part of a divorce settlement is generally treated differently from an ordinary sale. The transfer may not result in an immediate capital gain or loss, but future tax consequences can still matter when the property is eventually sold.

Should I sell the house before or after divorce?

There is no universal answer. Selling before or after divorce can produce different financial, legal, and tax consequences depending on the circumstances. Factors can include the home’s gain, ownership and residence history, mortgage, market conditions, transaction costs, and the terms of the divorce settlement.

Why can keeping the house be financially risky in a divorce?

A house may contain substantial equity but does not necessarily produce income to pay for itself. If most of your settlement is tied up in the home, you may have less liquidity for retirement, emergencies, investments, or other living expenses. You also remain responsible for the ongoing costs of owning the property.

Should I give up retirement accounts to keep the house in a divorce?

That depends on the values, tax characteristics, liquidity, and long-term financial implications of the assets involved. A dollar of home equity may not have the same practical financial value as a dollar in a liquid investment or retirement account because different assets have different tax rules, growth potential, and expenses.

How do I determine whether keeping the house is financially worth it?

Start by calculating the home’s current value, mortgage and other debts, and net equity. Then estimate the home’s total annual carrying costs and compare them with your expected post-divorce income and budget.

Finally, compare keeping the home with the assets you would receive if the property were sold or awarded to your spouse.

16. Should I get a financial professional before deciding who gets the house?

A financial professional who understands divorce can help analyze the house alongside the other marital assets and liabilities. A financial expert may be able to help you evaluate the financial implications of different property settlement options.

Can children affect who gets the house in an Arizona divorce?

Children and parenting arrangements can be relevant to decisions about housing and parenting time, but having children does not automatically mean one parent receives the marital home. Property division and parenting issues are separate legal considerations, and the circumstances of each case matter.

What documents do I need to evaluate the house in a divorce?

Useful documents can include the mortgage statement, deed, recent property tax information, homeowners insurance information, appraisal or comparable-sales information, records of major improvements, and documentation showing the property’s purchase price and ownership history.

Financial statements and information about other marital assets are also important when comparing settlement options.

Should I get an appraisal before deciding who keeps the house?

An appraisal or other reliable valuation can be useful when the home’s value is disputed or when significant equity is involved. Knowing the property’s reasonably supportable market value helps both spouses understand the amount of equity being considered in the divorce settlement.

What is the biggest mistake to avoid when keeping the house in a divorce?

One common mistake is focusing on the emotional value of the home without analyzing the complete financial picture. Before agreeing to keep the house, consider its equity, debt, taxes, maintenance, insurance, liquidity, refinancing requirements, and the other assets being exchanged for it.

Should I talk to an Arizona divorce lawyer before agreeing to keep the house?

Yes. The house can be one of the most significant assets in a divorce, and the settlement terms can affect ownership, debt obligations, property division, and future financial decisions. An Arizona divorce attorney can explain how the applicable property-division rules apply to your circumstances.

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