This article is part of a 5-part series on what divorcing couples might do when faced with the pressing question of what to do with the family home.
This fifth option—swapping the home for other major assets, typically applies when a joint mortgage is not a factor. For example, trading assets may make sense for the fortunate few who do not have a mortgage and own their home outright. Or this option may work for couples in which only one spouse is on the mortgage, yet the home remains a marital asset. This option also applies if one of you wants to refinance without borrowing to cash out the departing spouse’s equity share.
In these cases, you can essentially trade assets. Perhaps one spouse receives the home, but the other spouse is apportioned the majority of retirement assets, brokerage accounts, or savings? Or the family cabin, boat and/or car? If there are enough assets to swap, you have the option to be creative when dealing with the family home.
A few points to keep in mind when trading assets:
To begin, this approach generally requires that you either value the home and other non-monetary tradeable assets, or simply agree upon a value. For the home, you can secure an appraisal or speak with a real estate agent to obtain a less formal comparative market analysis.
You should also consider the tax implications of the various assets you are trading. It is worthwhile to consult with a tax consultant or CPA. There are assets, for example, that are:
- not subject to tax (such as cash or home sale proceeds that fall within the capital gain exclusion).
- subject to capital gains but not income tax (such as brokerage accounts, stocks bonds, or home sale proceeds that exceed the capital gains exclusion).
- subject to income tax at the time of withdrawal (such as 401k, IRAs, and certain pensions). In all cases, you want to essentially “tax-effect” each asset so you can arrive at a fair arrangement.
Finally, you should consider future value. Your home will likely continue to rise in value over time. Financial assets – such as stocks and bonds – may increase at a different rate. Other tangible assets – such as a boat or car – may decrease in value. Anticipated growth, therefore, should be a factor when trading assets.
***
If you have questions about whether what to do with your family home during divorce, contact Jim Robenalt, an experienced mediator and lawyer, to discuss your particular circumstances. To schedule a free consultation call, you can get in touch with Jim by calling (216) 206-9789.
