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In 2020, more than 630,000 divorces were granted across the U.S., according to estimates from the U.S. Census Bureau. This means thousands of couples that year faced decisions about what to do with joint bank accounts, joint credit card accounts and jointly owned property, including their homes.
As part of this process, a divorcing couple who owns a home might opt for what's known as a deferred home sale. A deferred home sale may be set up as part of a divorce proceeding to help reduce the disruption to a family—especially one that includes small children.
Learn more about when a deferred home sale might be carried out, how a deferred sale works and whether it's a good option.
Why Are Deferred Sales Done?
Why are deferred home sales done? Here are some of the reasons:
- The couple wants to hold off selling the home until all of their kids have graduated and moved away.
- The couple hopes to avoid uprooting their kids, which would heighten the stress of the divorce.
- The couple plans to wait until the spouse still living in the house can refinance the mortgage and buy out the other spouse's interest.
- The couple wants to postpone the sale until the spouse still living in the house is ready to move out.
- One of the spouses needs time to build their credit or boost their income in order to buy out the other spouse's interest in the house.
- The couple plans to delay the sale until the local housing market picks up.
- The couple is still working out details about mortgage payments, property taxes and other financial aspects of the home.
- The couple is struggling to decide how they'll split profits from the sale.
How Do Deferred Sales Work?
Either divorcing spouse can ask the judge handling their divorce for a deferred home sale. In ruling on this sort of request, the judge will consider factors such as:
- The effect a deferred sale would have on the couple's children. Would selling the house now result in the children moving in the middle of a school year? Would a move disrupt the kids' education? The judge would weigh these and other questions.
- The financial effect of staying in the co-owned home. Would both spouses be able to cover the mortgage and other housing expenses?
- The financial impact of moving to new homes. Would relocation be affordable right now for the divorcing spouses?
- The effect on employment. Would a sale and relocation cause the jobs of one or both of the spouses to be jeopardized?
In addition to one spouse having the ability to request a deferred sale, one of the spouses can also ask the judge to dismiss the other spouse's request for a deferred sale.
Important Steps in a Deferred Sale
Here are three key steps in the deferred sale of a home:
- Establish terms. A couple's written, court-approved divorce settlement should spell out details about the deferred sale. For instance, what is the deadline for selling the home? Also, who's going to get the house? And who's responsible for paying expenses associated with the house?
- File the deed. If the house will be kept by one spouse, the other spouse must sign what's known as a special warranty deed to transfer their share of the ownership. The deed will be filed with the county clerk in the county where the house is located.
- Get a court order (if necessary). If the divorcing spouses can't come to terms on a deferred sale, the judge may order a sale or may award full ownership to one of the spouses.
Is a Deferred Sale a Good Option?
Depending on the circumstances, a deferred home sale can be a good option. But it can also be a bad option. Here are some of the pros and cons.
Pros of a Deferred Sale
- Putting off the sale of the home might make it easier for the couple's children to adjust to their parents' divorce. For example, delaying the sale may enable the kids to finish the school year without moving.
- The couple can share both the benefits (such as home appreciation) and costs of co-owning the home.
- Delaying the sale might allow more time for the home to gain value, making it a better investment for both spouses.
Cons of a Deferred Sale
- The level of communication and cooperation needed for a deferred sale might spark even more friction between the home's divorced co-owners.
- A deferred sale might lead to negative tax consequences. Generally, you can exclude profits from the sale of a primary residence on your tax return—up to $250,000 for a single filer and $500,000 for joint tax filers—as long as you meet certain conditions. But if you co-own a house for a significant span of time after your divorce is finalized, you might end up losing this tax break.
- If the name of the spouse who's moving out stays on the mortgage, this will be reflected on that spouse's credit report. That's true even if this spouse isn't making payments toward the mortgage. As long as this information remains on the credit report of the moved-out spouse, it could hurt their ability to qualify for credit or obtain favorable credit terms (such as a lower interest rate).
The Bottom Line
Regardless of whether you're selling a house as part of a divorce or you're going to remain a co-owner, be sure to regularly check your free Experian credit report. You'll want to see whether any incorrect information appears on the report that might drag down your credit score.