Divorce Settlements – Your Residence

Divorce Settlements – Your Residence

Divorce can be one of your largest financial transactions that you will experience in your lifetime, so be sure you are prepared to achieve the most equitable divorce settlement.

Listed below are four common mistakes you should avoid making with your principal residence:

1. Not knowing your true cost basis and capital gains.

Over the years you could have gained considerable equity in your home, knowing the cost basis is critical to ensuring a fair and equitable division of your personal residence. Married couple can exclude up to $500,000 in capital gains every two years for the sale of their home. Therefore selling a home before the divorce is final would qualify for the marital exclusion otherwise you would only be allowed $250,000 as a single taxpayer.

2. Keeping a house you cannot afford.

Ask yourself does it make sense to keep the house?
Are you allowing emotions to cloud your judgment concerning the house?
Be sure to review your budget and make sure you can make those house payments to include, property taxes, homeowners insurance, utilities and general maintenance and upkeep. Review your projected cash flow over the life of the mortgage to insure that you will be able to cover your expenses.

3. Not requiring the refinancing of the home.
In case a decision is made where one of spouses’ is to keep the home; be sure that spouse refinances the home. If you do not refinance then both parties will be liable for any late payments or defaults on the mortgage loan. This can wreak both parties’ credit scores and make it almost impossible to acquire new credit.

4. Keeping poor records of repair and major improvements.
When it comes time to sell your residence, good record keeping is essential to determine cost basis to minimize potential tax liabilities and calculate your long term capital gains. If you used a portion of your home to deduct in-home business expenses on your tax return, you will need that information as well to calculate your taxes especially if you are required to recapture some of those deductions when you sell the house.

 

Daniel Iuculano, AAMS CMFC

Accredited Asset Management Specialist

Chartered Mutual Fund Counselor

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