Divorce is a significant life event, and one of the most challenging aspects often revolves around the division of marital assets. In California, where property values can be high, making the decision to sell the family home before finalizing the divorce proceedings can often be the most sensible financial choice. In this article, we explore the reasons why selling the house first can be a prudent strategy for couples navigating divorce in the Golden State.
- Equitable Asset Distribution: California follows the principle of “community property,” which means that marital assets are typically divided equally between the spouses. By selling the house first, couples can ensure an equitable distribution of the proceeds, leaving no room for disagreements or disputes regarding the home’s value or future use. This approach can streamline the division process and expedite the divorce proceedings.
- Simplifying Asset Division: The sale of the family home can simplify the asset division process as it provides a significant source of liquidity that can be used to divide other assets more This can help avoid drawn-out disputes over who gets what, streamlining the entire divorce procedure.
- Eliminating Ongoing Financial Obligations: Maintaining a shared home during the divorce process can be financially burdensome. Continuing to pay for mortgage, property taxes, and maintenance expenses while living separately can strain both parties’ finances. Selling the house and splitting the proceeds can alleviate this financial strain and allow each spouse to move forward with their lives more comfortably.
- Capital Gains Tax Exemptions: In California, there are capital gains tax exemptions for homeowners when selling their primary (Typically, $500,000 capital gains tax exemption for married couples, $250,000 for single people). By selling the house before the divorce, couples may take advantage of these tax benefits, potentially saving a substantial amount of money. This can result in a more favorable financial outcome for both parties.
- Eliminating Emotional Ties: The family home often carries emotional baggage and can be a source of contention during divorce proceedings. Selling the house first allows both spouses to eliminate the emotional ties and attachments associated with the property, facilitating a smoother and less emotionally charged divorce process.
- Easier Division of Sale Proceeds: Once the house is sold, the sale proceeds can be divided more straightforwardly than managing the property’s ongoing expenses or trying to agree on its value. This division can be done according to the divorce settlement, ensuring a clear and legally binding resolution.
While the decision to sell the family home before completing a divorce in California may not be the best option for every couple, it could offer several compelling financial and practical advantages. It ensures an equitable distribution of assets, eliminates reoccurring monthly financial obligations, such as mortgage payments, property taxes and takes advantage of potential tax benefits, and simplifies the division of sale proceeds. Ultimately, choosing to sell the house first can help some couples navigate the complexities of divorce more efficiently, setting the stage for a smoother transition to their post-divorce lives. However, it’s crucial to consult with legal and financial professionals to determine the best course of action for each specific situation. Schedule a consultation with Debbie for more information.
About the author:
Debbie Wong is a Real Estate Collaborative Specialist in Divorce and offers 1-hour sessions of “Financial/Real Estate Advice – Why Divorcing the House First, Makes Sense.” She is a licensed Real Estate Broker in California DRE# 01074881. This service is limited to California.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Please consult with your own attorney, CPA, or tax specialist for legal, professional advice for your personal situation.