What should we do with the house when we divorce?

Married homeowners in Texas who are getting divorced should carefully assess their options for keeping or selling their house during their divorce to understand the tax, credit and cash flow implications.

For married couples in Texas who own a home together, their house is often the single most valuable asset they share. At the same time, their mortgage may be the single biggest debt they carry. When these couples make the tough choice to end their marriage, they are then faced with another tough choice: what should they do with their home?

Consider the big picture

U.S. News and World Report suggests that divorcing spouses should not consider what to do with their family home in a silo. Instead, they should evaluate their home and its associated mortgage in the broader context of their entire divorce settlement.

If one spouse wants to keep the home, the couple will need to evaluate their other assets and debts to determine what may be a reasonable allocation to each party. There may need to be some negotiation when all assets like a home, vehicles, retirement accounts and more are reviewed together.

If the decision to sell the home is made, the couple should factor in the costs associated with selling a house such as repairs, closing costs and real estate agent commissions. In addition, if the sale of the home results in a profit, the pair will want to understand and factor in any capital gains tax to be owed.

Be cautious with the mortgage

If two spouses agree that one person will keep the marital home, they should take the steps needed to address their joint mortgage as well. The Mortgage Reports recommends that the person who will keep the house should get a new loan in their name only. For the spouse who is letting go of the home, this is truly the only way to protect themselves against potential financial nightmares in the future.

Even when a divorce decree outlines financial responsibility for a home, a lender may still choose to pursue repayment from the other party if the original joint debt remains active. Similarly, if the person who keeps the house fails to make any payment or is late on any payment, the bank may report that on both spouses' credit reports since both names are on the mortgage.

Any foreclosure action that may be initiated or completed on the property could also be reported against both parties, damaging the credit score of the person who was not even technically responsible for the debt any longer.

Seek legal input

The complexities associated with splitting up a marital estate, especially one that involves home ownership, are real. This makes it very important that divorcing couples in Texas get the right guidance from an attorney who understands the many facets involved in these decisions.