Which spouse should get the house?

Aside from child custody, the most emotionally charged issue in a divorce is often who gets to keep the house. For most couples, a house is their most valuable asset, and it has an enormous symbolic value as well.

Sometimes the best plan is to try to keep the house. But not always. For many divorcing spouses, it’s smarter overall to allow the other spouse to keep the home (and the mortgage), and receive other assets instead. And some couples are better off if they jointly sell their home.

Here are some things to consider:

The mortgage. If you keep the house, your spouse will almost certainly want to take his or her name off the mortgage in order to avoid being potentially liable for the debt. That means you’ll likely have to refinance the mortgage in your own name.

So you’ll have to consider whether you can afford the payments, and even whether you can obtain a mortgage based on your income alone. Most banks have tightened up their lending practices considerably since the financial crisis a few years ago. And while you might be receiving alimony or child support from your ex, you should know that many banks won’t consider alimony payments to be part of your income unless you’ve already been receiving them regularly for some period of time, such as a year.

Sometimes a spouse will agree to keep his or her name on the mortgage – at least temporarily – so that the spouse who is keeping the house doesn’t have to sell it right away. This might happen, for instance, if the children want to stay in the house, or if selling it would force them to switch to a different school or otherwise upset their routines and social lives.

Even if a couple plan to eventually sell their house, it might be in an ex’s interest to let the other spouse keep the house for several years, especially if the local real estate market is soft or if the house needs some updating to fetch a good sale price.

An ex who keeps his or her name on the mortgage might want to be compensated in some way for this, or might want other guarantees that the “house spouse” won’t default and ruin the ex’s credit score.

Other costs of owning a home. If you keep the house, you’ll also need to take a hard look at the other costs of owning a home by yourself – including property taxes, homeowner’s insurance, upkeep, etc. These costs won’t go down after a divorce.

Tax consequences. When deciding whether to keep or sell a house, you’ll want to consider all the tax consequences. For instance, selling a house means you’ll no longer get a mortgage interest deduction, and in some cases you may owe capital gains tax on the sale.

Of course, if you decide to let your spouse keep the house and take other marital assets instead, you’ll want to consider the tax implications of those assets as well. For instance, if you have stocks that have appreciated in value, you’ll probably have to pay capital gains tax if you sell them. If you have an IRA or 401(k) account, you might have to pay income tax when you withdraw the funds.

Appraisals and inspections. If you decide to keep the house and essentially “buy out” your ex’s share with other assets, it’s a good idea to treat this the same way you would any other real estate purchase, just as if you were buying from a stranger.

For instance, you should get an appraisal so you know the house’s market value. Include the value of appliances and other things that are staying in the home.

You may want to get the house inspected, and find out how long it will likely be before you have to repaint, repair the roof, fix the heating and air conditioning systems, etc. Are there any signs of termites or other problems? Remember, once you “buy” the house from your ex, you can’t undo the sale if you find unexpected issues.

Finally, it’s a good idea to do a title search before the divorce is final. You don’t want to discover too late that there’s a lien on the home owing to something your ex did without your knowledge.