Nolo's Essential Guide to Divorce - Emily Doskow [112]
It also means that you must continue to be involved with your spouse. Of course, if you are parents, that's already true, so this may not feel like a big additional burden. But if you anticipate that it will make the emotional disentanglement more difficult, think twice before you agree to this long-term commitment.
You run the additional risk that the spouse not living in the house might have a change of heart later and want (or need) to sell sooner than anticipated. Your settlement agreement should set a specific time that the house can be sold-if it does, the agreement will govern. But anyone who's really determined to get out of an agreement can make your life miserable in the bargain-for example, by claiming that the agreement was entered into under duress and forcing you into a court fight over that issue. So if you think the decision might not stick, don't make it in the first place.
If you own the house together for a significant period of time after your divorce becomes final, you also risk losing the important tax benefit of IRS Section 1041, which is the rule that says transfers between spouses as a result of a divorce are not taxable. Section 1041 applies as long as the transfer takes place within a year of the divorce becoming final, or as long as it's "related to the ending of your marriage," which means it's made under a written agreement or order and occurs within six years of the date your divorce becomes final (after six years, you lose the tax benefit no matter what). So make sure you don't just make a handshake agreement. Make the agreement to keep the house a part of your written settlement agreement, and get the court to approve it so that it becomes a court order.
Finally, consider two important risks. First, what would happen if one spouse died while you were still co-owners? Each of you has the right to leave your share at death. If you've agreed that one of you will stay in the house until the kids are a certain age, you could also agree that during that period you'll each leave your share of the house to the other, so that the resident spouse can continue to stay as you planned. This requires that you both make wills immediately.
The second risk is that one spouse will be sued by creditors or file for bankruptcy. In either of these cases, that spouse's share could be seized, possibly even resulting in a forced sale. There's really no way to protect against this, so if you believe it's a meaningful risk, don't go the co-ownership route.
Can't decide what's best for you? Figuring out how to deal with this valuable asset-including whether you can actually afford to stay in the housecan be challenging. If you want to do a detailed analysis of your options using financial worksheets, take a look at Divorce & Money: How to Make the Best Financial Decisions During Divorce, by Violet Woodhouse with Dale Fetherling (Nolo). You might also want to consider consulting with a divorce financial analyst. See Chapter 16.
Dividing Your Other Assets
The things you own are valuable to you for lots of reasons-some that make sense, some that might seem crazy. Sometimes giving up the handmade placemats you got for $10 on your vacation in Peru is harder than deciding that you can live without the $2,000 plasma TV. Dividing them up won't always be easy, but try not to drag it out.
Household Items
Some parts of the process are fairly simple. To start with, each of you keeps your own clothing, jewelry, and personal effects. If you're living separately, you've most likely separated those items already. Likewise, you may have divided up some of the furniture and kitchen items. If you want to be sure that each of you is getting furniture and other household items of approximately equal value, you can probably do a quick Internet search to find their current fair market value. This is one place where you really want to save your money by doing it yourselves, even if you have lawyers. Shelling out lawyers' fees to argue about who gets the sectional sofa just doesn't make economic sense.
Instead, make a list, check