The marital home is often the largest asset of the marriage and linked with
many emotional issues. All these emotional and financial issues must be considered
before its distribution is finalized. The financial points that need to be addressed
are listed below and are organized in the following manner: The Sale
of the Home: tax issues, equitable distribution issues to be considered
and planning points; Mortgage Interest and Real Estate Taxes:
tax issues and planning points.
1-If husband and wife have lived in and owned their primary residence 2 out of 5 years from the date of the sale, then they may exclude the first $500,000 of gain from taxable income. If they are already legally separated or divorced and filing as single or head of household, and title is one name, then the gain exclusion is $250,000. The ability to use this provision is limited to once every 2 years, with certain exceptions. If gain exceeds these limits, or the gain was earned in less than 1 year at the time of sale capital gains rules apply.
2-If spouses have joint ownership of the marital home and one moves out giving exclusive possession to the other spouse, the departing spouse can take advantage of the tax benefits as mentioned above when the house is sold. Also, if the house were transferred to the remaining spouse from the departing spouse, the remaining spouses holding period includes the period that the transferor-departing spouse owned the property. (Click here to continue)
As someone whose job it is to help people find mortgages, it should not surprise you that a lot of the people I help are people affected by divorce. It is not uncommon for the marital home to be the largest, or one of the largest, financial assets in the marriage. Because of this, dividing the interests of the husband and the wife can dramatically affect how the other marital assets will be divided. Making decisions without a clear understanding of the financial implications, both short- and long-term, the manner in which the marital home is settled can be a formula for disaster. On the positive side, the marital home can be the best source for finding a workable financial solution to your divorce.
Settling the marital home is obviously not the place to cut corners. The best advice is to hire a professional who is familiar with the financial aspects of divorce, better yet someone who is well connected with professionals who specialize in and understand this aspect of the divorce process. This professional is often the mortgage broker, because mortgage brokers deal with attorneys, financial experts and multiple lenders on a regular basis and can “shop around” for and help put together creative financial solutions to your divorce.
Aside from its effect on the division of other assets, these are some of the issues that come into play in a divorce. The home is an example of what is called an “illiquid” asset. It is not the type of asset from which you can easily and inexpensively withdraw cash. Second, the marital home is often jointly owned and jointly indebted. Third, there are often important non-financial issues involved with the division of the home, such as the presence of young children, emotional ties to the home and emotional security. (Click here to continue)
In the article "Thinking About Settlements: Should Retirement Plans Be Discounted for Taxes?" published in the June issue of New York Family Law Monthly, I explained that retirement plans are complex assets, comprised of both tax-deferred (asset) and taxable (liability) components. Because of this complexity, I explained that the true value of these assets is context-dependent and closely tied to the financial situation of the ultimate owner. Attempting to divide these assets equitably in the one-dimensional environment of the yellow legal pad is not without peril.
Tax-Free and Tax-Deferred Compounding
The marital home, often the second financial centerpiece of a marriage, is also a complex asset that must be divided in the context of the overall division of other assets and income. Under current law, assuming certain conditions are met, an individual can exclude from taxation up to $250,000 in profit on the sale of the marital home ($500,000 if remarried). In addition, any profit (capital gains) over and above this amount, if subject to taxation at all, is usually taxed by the Federal government at the low rate of 15%. (Click here to continue)
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