Stay or Go? What to Do With a House After Divorce

If you're like most divorcees, deciding whether to keep or sell the house when you split is one of the most emotional decisions you'll make.

But be sure to pay yourself back as fast as you can, because you may be hit with tax penalties for an early withdrawal if you wait too long. Check with your plan administrator for details.

  • Sell your share to your spouse if you know he is giving you half of the true value. Get your own appraisal to be certain. Then move on.
Tax-law changes
Before the recent tax-law changes, it almost always was a bad idea to keep the house as your main marriage asset in the divorce settlement, although many women did. That's because, in most cases, when the time finally came to sell it, you'd be smacked with a serious tax bill on the capital gains.

The good news is that has changed. In general, there is no tax on the first $250,000 of capital gains. But to get that exclusion, you must have lived in the home for at least two of the five years before you sold it.

As always, there are nuances to the law. For instance, if you are still married when you sell the house, you and your spouse have a $500,000 exclusion, providing you met the two-year residence requirement. And if you do hold onto the house, the time when your spouse owned the home is considered your time as well.
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