One of the big questions divorcing couples face is whether to sell the family home. There is no right or wrong answer, as it depends on many circumstances. However, the conventional wisdom is often to sell and split the proceeds.
Below is a hypothetical case that may change your mind about selling.
A couple is divorcing after 15 years of marriage. They have two minor children and a $600,000 home with a $200,000 mortgage. The mortgage payments are $1,500 on a 30-year mortgage at 6.5 percent.
The wife earns less than half of the salary of her husband. There is also an IRA with a value of $650,000.
They decide that she keeps the home and a $50,000 country club membership with annual fees, which can later be sold and liquidated if she chooses. He gets the IRA.
At first glance, it might appear as if the husband got the better deal. After all, his asset was much more easily liquidated if need be, while hers could take months or even longer to produce cash.
But the wife actually was the winner here. By retaining the family home, she preserved her and the children’s lifestyles. The kids got to swim at the club and take tennis lessons for a nominal price.
If circumstances force her to sell the home, she gets a $250,000 federal tax break on the sale of the property since she lived in the home for two of the previous five years. Any profits will be taxed at the lower rate for capital gains.
The husband’s IRA is worth between 25 and 40 percent less than the face value, as all IRA distributions get taxed as income when withdrawn.
In a decade, the wife’s assets will be worth over $3 million because the house will appreciate 8 percent each year. With an invested IRA, the husband’s assets will only be worth a couple million dollars.
This is just one way a similar scenario could play out. There are many variables that could apply in your case, so make sure to take the advice of your Florida family law attorney and financial advisor when deciding which assets you want to keep from your marriage.