For many divorcing couples, the family home is both the largest asset and the most emotionally charged issue. Understanding your options for handling the marital residence helps you make practical decisions during an emotional time.
Options for the Family Home
Three main options exist for the marital home:
Sell the home and divide proceeds: The cleanest break—both spouses move on without ongoing ties.
One spouse buys out the other: One keeps the home, compensating the other for their equity share.
Continue co-owning temporarily: Both retain ownership until a future date (often until children finish school).
Each option has advantages and drawbacks depending on your circumstances.
Selling the Home
Selling provides a clean financial break. Benefits include converting equity to cash for fresh starts, eliminating ongoing joint obligations, equal division of a major asset, and no need for buyout financing.
Drawbacks include the disruption of moving, especially for children; transaction costs (typically 6-10% of sale price); possible unfavorable market timing; and capital gains taxes if equity exceeds exemptions.
Buyout by One Spouse
If one spouse wants to keep the home, they must compensate the other. This typically requires determining fair market value (often through appraisal), calculating each spouse's equity share, and arranging financing to pay the departing spouse.
The buying spouse usually refinances the mortgage solely in their name, using cash-out refinancing to pay the other spouse's share. The departing spouse should insist on removal from the mortgage—remaining on the loan means continued liability if the other spouse defaults.
Calculating Equity
Equity calculation determines what each spouse is owed:
Fair market value - Mortgage balance - Selling costs (if applicable) = Net equity
If the home is worth $500,000, the mortgage is $300,000, and hypothetical selling costs would be $40,000, the net equity is $160,000—potentially $80,000 each in a 50/50 division.
However, division isn't always equal—other assets may offset the home, or equitable distribution factors may adjust shares.
Continued Co-Ownership
Some couples continue co-owning temporarily—typically to allow children to remain in their school and community. The custodial parent often lives in the home while both spouses remain on the mortgage and deed.
This arrangement requires clear agreements about who pays the mortgage, taxes, and insurance; who's responsible for maintenance and repairs; when the home will be sold; and how appreciation (or depreciation) will be divided.
Risks include ongoing financial entanglement, disputes over maintenance, and one spouse's credit depending on the other's payments.
Tax Considerations
Home sales can trigger capital gains taxes. Single filers can exclude up to $250,000 in gains; married filing jointly can exclude $500,000. Divorcing spouses may time sales to maximize exclusions.
The spouse keeping the home takes over the original tax basis—potentially facing higher taxes when they eventually sell. Factor this into buyout negotiations.
Who Gets to Live There During Divorce?
While divorce is pending, courts may grant one spouse exclusive occupancy—especially if children are involved or domestic violence concerns exist. Temporary orders address who lives in the home, who pays the mortgage, and responsibility for other housing costs.
Separate Property Considerations
If one spouse owned the home before marriage, it may be separate property—but appreciation during marriage, mortgage payments from marital funds, or improvements may create marital interests requiring division.
Underwater Mortgages
If you owe more than the home is worth, options include short sale (if lenders agree), continuing payments until equity builds, one spouse assuming the debt in exchange for other concessions, or foreclosure as a last resort.
Protecting Your Interests
During divorce, protect your interests in the home: Don't move out without understanding legal implications. Don't agree to terms without understanding financial consequences. Get the home appraised by a qualified professional. Document any separate property contributions. Consult with a divorce attorney before signing agreements.