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How to sell a house during divorce in Maryland

Selling a House During Divorce Maryland


Life happens, sometimes things just don't work out, and the marriage could end in bitter divorce.

Data from the past 20 years show that approximately 2 people for every thousand get divorced in the United States as of 2020. Looking at the Maryland marriage rates, on the other hand, show that an estimated 5 people out of every thousand gets married. This means that nearly half of all marriages end in divorce, certainly a depressing statistic.

Divorce is a very emotional and traumatic time, especially when there are children in the picture. And, to further complicate matters, you are not only dealing with heartbreak--there can be huge financial ramifications as well.

Who Gets the House in a Divorce Maryland?

For most couples, the family home will be their greatest and most expensive purchase in a marriage. Therefore, is is natural to ask what happens to it in the event of a divorce.

Is selling the Harford county, Maryland and surrounds house and splitting the proceeds your only option?

In this article, we'll explore the options available in dealing with the marital house during a divorce, the things you need to know regarding the home sale process in a divorce, and the tax implications in selling the house during a divorce.

Marital and Non-Marital Property

With a few important exceptions, “marital property” is all the property that you or your spouse acquired during the marriage. Marital property also includes most of the property that you or your spouse acquired “individually” during the marriage. Marital property normally includes things such as your and your spouse’s bank accounts, houses, businesses, cars, furniture, appliances, stocks, bonds, jewelry, pensions, retirement plans, and IRAs acquired during the marriage.

Property Distribution By Agreement

The parties may agree on the division of any property held by them without assistance of the court.

Property Division by Court Action

If the parties do not have an agreement, Maryland's Marital Property Act governs the division of property. Under the act, all marital property is subject to equitable distribution. If you and your spouse cannot agree how to divide your property, the court will decide what is marital property, and how much that property is worth. The court will also look at any marital debts (for example, mortgages and credit cards) when determining the value of the marital property.

The court will then determine each spouse’s share (portion) of the property. To determine how much to award or transfer to each party, the court will consider the following factors:

  • how much each party contributed to the well-being of the family (this includes income, but also contributions such as one spouse caring for the married couple’s children, or doing housework and cooking for the family);

  • how much each party’s property is worth;

  • the economic circumstances of each party at the time the court makes the award;

  • why the parties are seeking divorce and how they got there;

  • how long the parties were married;

  • the age of each party;

  • the physical and mental condition of each party;

  • how and when the parties acquired specific marital property, including how much effort each party expended to accumulate the marital property;

  • how much each party contributed to acquiring the real property (for example, land or a house) held by the parties as tenants by the entirety;

  • any award of alimony or other court award about family use personal property (such as a car), or the family home; and

  • any other factor that the court considers necessary or appropriate to consider to arrive at a fair monetary award or transfer of property.

Real Property

If the property cannot be divided physically (such as a house), the court will determine a value based on evidence the parties present to the court.

There are several options available for real property. One person can “buy out” the other person as long as both parties agree. If the parties cannot agree, the court may order that the parties sell the property and divide the proceeds. In Maryland, the court does not decide what to do about the marital assets to be divided.

Equitable Distribution State: Maryland


The state you live in can have a significant effect on your divorce settlement proceedings as there are rules regarding the distribution of marital property. It mainly depends on whether you live in a community property or equitable distribution state :


Maryland is Equitable Distribution State


So, equitable distribution tries to achieve fairness in marital asset and debt distribution after the divorce trial.

Fair doesn't necessarily mean equal in this case, as the divorce court would take into account several factors such as the age and health, employability, income, and economic situation of the parties after the divorce. Spousal support is also typically included in the court order after the divorce has been finalized.

As in community property states, assets owned, inherited, or gifted to only one spouse remains separate property and will be exempt from equitable distribution.

Division by Mutual Agreement

There's another way of dividing assets and debts without the hassles of court hearings: mutual agreement.

As long as the Maryland divorcing spouses can agree on how to split up their assets and debts, neither spouse needs to get a divorce attorney or get the court involved. It doesn't matter even if large assets are involved--mutual agreement between spouses is operating outside of court supervision, so property division rules in the state need not be followed.

If there is a post nuptial agreement detailing who would get which assets and who is responsible for debts in the event of separation or divorce, this would also govern instead of state property division rules.

Ways to Settle Property in a Divorce Maryland

In the event of a separation or divorce, it's best to get in touch with a reputable law firm who can advise you on the best course of action before doing anything in Maryland.

Nevertheless, to give you an idea, there are 4 ways to settle your shared property during a divorce:

Option #1: Divide Large Assets


If you and your spouse own multiple shared large assets such as vacation home in addition to your family residence, a boat, several vehicles, and a stock portfolio, it may be easier to simply divide the assets between the two of you. For example, one gets the vacation home and the boat while the other spouse gets the family home, the luxury car collection and the stocks.

This can save time for both of you as there is no need to wait for a real estate transaction to be completed (in case of a sale), and avoids negotiations regarding the future value of the assets.

However, Maryland real estate appraisers will certainly be brought in as there will be negotiations about the current values of the home and other assets. You'd both want to come up with an equitable agreement. This can get challenging if the divorce is less than amicable.

Option #2: One Spouse Gets Sole Ownership

If you would like to stay in the house and keep the Maryland property, then you can buy out your spouse's financial and legal interest. Depending on where you live in, you pay more or less half the market value of your home. You'll then have to apply for a new loan that will solely be in your name.

Since you'll be assuming all liability risks as well as making the monthly mortgage payment on a single income, you must have enough cash that is considered separate property not subject to divorce proceedings, to be able to cover everything.

If not, then you can both consider to...

Option #4: Co-Own the Marital Home

This usually happens when there are children involved. It allows one spouse with the custody to stay in the house and provide a somewhat stable environment--in spite of the circumstances--for the kids. The home sale could then be postponed until the youngest child turns 18, a selling strategy called a deferred sale.

Deferring the sale of the home gives you both a chance to reap the rewards of property appreciation in the years to come.

This is also an attractive option if neither of you can afford to buy out the other spouse.

A caveat though: retaining ownership of the marital home means you remain tied financially to each other. One spouse missing a mortgage payment can negatively impact both of your credit scores. As such, it is advisable to have a written and signed agreement regarding mortgage and financial upkeep of the property.


Additionally, once you proceed to sell the Harford County, Maryland and surrounding areas house, the co-owner who isn't living in the house as their primary residence for at least two of the past five years cannot claim the home sale tax exclusion. Thus, they would have to pay capital gains taxes on whatever profits they would get from the property sale.

Before deciding to co-own the home, it can be worthwhile that you consult a financial advisor or a tax professional to explore a few options that can help mitigate the impact of this future tax bill.

Take turns living in it (aka Bird nesting)

Even if only one of you lives in the Maryland house at a time, there is still a way to claim the homeowner exclusion. To be eligible for this tax break, the IRS sets forth three requirements to fulfill:

  • Ownership - you must own the home for two years before selling it

  • Residence - to be considered as your primary home, you must comply with the 2 out of 5 year rule in real estate which means you have to live in it for a minimum of 2 years in the previous 5 years of owning it. Living on the property doesn't have to be continuous

  • Lookback - you haven't claimed this tax exclusion in the preceding 2 years

Of the three, the residence requirement is the most challenging to complete especially if you are not the parent with custody of the children. A way around this is to take turns living in the home so both of you can claim it as your primary residence in Maryland when the time comes to sell it.

Turn the marital home into a rental

If the Maryland real estate market is weak that selling doesn't seem to be a viable option, you can both continue to keep the house and rent it out. The rental income can cover property taxes and mortgage or financial upkeep. You can then choose to sell at a later date once the market improves.

Keep in mind though, being co-landlords requires extensive coordination and agreement with your ex spouse. Depending on how harmonious or acrimonious your separation happens to be, this option can work out or be off the table entirely.

Option #4: Sell the House and Split the Proceeds

The previous three options require plenty of mutual agreement and coordination with your ex spouse.

But what if the divorce is messy?

In cases of marital misconduct destroying a marriage, it is understandable that you wouldn't want to deal with your ex more than necessary. You'd want to move on with your life as soon as you could.

Therefore, it would make the most sense to just sell the house and divvy up the proceeds. Since you get cash, there's no need for Maryland appraisals and negotiations as is the case in dividing large assets or in buyouts. When you sell, you'll no longer have financial ties to each other, as in the case of co-ownership. Once done, you walk away with the money and get on with your life.

Reasons for Selling the Marital Home in Maryland


Oftentimes, selling the house during a divorce is the best course of action for the following reasons:

Neither of You Can Afford the Mortgage Payments on Your Own

In all likelihood, when you acquired the home together, the mortgage is based on both your incomes. Now that you are separating, it follows that the income will be halved and you may not be able to keep up with your mortgage payments.

Add to that the Maryland property taxes, maintenance, and general upkeep--all these can put too much strain on your finances so selling the house is the way to go.

Neither of You Can Agree on the Fair Market Value of the Home Maryland


If this happens, talks of a buyout can be in shambles before it even starts.

It could be that you owned the Maryland family residence before the marriage and you didn't get a pre-nuptial agreement. Afterwards, the property may have experienced crazy appreciation, or both you and your spouse contributed a significant amount to home improvements, boosting your home's value. Your spouse then, may feel entitled to half of the home's equity even though it's only your name on the title.

The Court Decreed the Home Sale as Part of the Divorce Settlement


In case there is no way that the divorcing couple could come into an amicable agreement, the court may intervene and force the sale of the house via court order. This can provide a quick resolution and allow the former couple to move on with their lives.

Emotional Reasons

When your marriage ends in divorce, the bitterness of the proceedings could compel you and your former spouse to just sell the house instead. The house contains memories of your time together, and staying there can be upsetting to either of you, so you might as well sell and use the proceeds for a fresh start somewhere else.

Tax Implications of Selling the Family Home for Divorcing Couples Maryland

Capital gains taxes when selling a Maryland house will have the biggest impact on your tax bill. Your home may have appreciated in value from the time you bought it together at the beginning of the marriage, and IRS would certainly want a piece of that pie.

Fortunately, the IRS allows homeowners to exclude the first $250,000 of the gains from being taxed when filing as single individuals; and the first $500,000 of the gains when filing jointly.

The question now is: Is it still possible to be able to claim a tax shield on the profits even though you are divorcing?

Absolutely.

It doesn't even depend on the timing of the sale, but there are complications that can certainly be avoided if you sell the house at a certain time. These complications would certainly weigh on your decision making process.

So now, maybe you are wondering if...

Should You Sell the House Before, After, or During a Divorce Maryland?

Scenario #1: Before the Divorce Is Filed


Selling before the divorce is filed is no different from selling property while you are still married in Maryland. Since you are still filing a joint tax return, you can protect up to $500,000 of the profits from capital gains taxes as long as you satisfy the ownership, residence, and lookback requirements of the IRS.

Scenario #2: During the Divorce

The only time you can sell the marital home in the middle of the divorce proceedings is if you and your spouse agree on it--in writing. Once the divorce is filed, standard family law restraining orders kick in, making it illegal to sell jointly-owned property without the other's consent. Doing so opens you up to sanctions and you may be liable for damages.


Scenario #3: After the Divorce is Finalized


If you both decide to wait until after the divorce is finalized before selling the Maryland house, you'd both still be able to claim the home sale tax exclusion individually (i.e. up to $250,000) as long as you satisfy the IRS requirements.

However, there is an added complication to this. On average, it takes a year to complete the divorce. That means, you have to continue making monthly payments even in the middle of the divorce proceedings. This requires coordinating with your ex regarding payment schedules and whatnot. If you choose to avoid that, it can still be hard to do on a single income with the added costs of your new housing.

It would then make it tricky to divvy up the proceeds when the time comes, since you'll have to factor in the appreciation (or depreciation) when calculating each spouse's share of the equity and other legal interest in the property.

How to Sell a House During a Divorce Maryland

Selling Harford County, Maryland and surrounds property during a divorce is usually no different than the usual home sale. The only thing you must be clear about is the division of proceeds and expenses associated with the sale prior to initiating it since you and your spouse are going your separate ways after all is said and done.

You and your spouse should figure out how you'd like to sell: go the traditional route with a real estate agent, go your own way with FSBO, or sell to a cash buyer.

Let's go over each of the options:

Real Estate Agent

With hurt feelings involved, selling a house during a divorce can be hard to navigate.

You can look for, and choose to work with, a Maryland real estate agent knowledgeable in family law. Per your agent's advice, you can do some repairs to be able to price your property accordingly prior to listing. You can even get the fair market value as long as you're not in a rush to sell.

The agent would then handle all the staging, showings, negotiating, and the closing. That could take a load off your responsibilities. But this comes at a price though. A realtor's commission is 6% of the sale price on average, so it can be quite significant. But some great agents offer lower commission and still provide the full service while guiding you through the delicate situation to sell a house during divorce.

Afterwards you and your spouse, can split the profits after the sale.

For Sale by Owner (FSBO)

If you'd like full control, and also the full responsibility that comes with it, you can do FSBO. Although you'll have access to a shallower pool of buyers since you'll be the one to market the property yourself, you don't have to pay your agent's commissions in Maryland. You can also do this together with the other party, although that can be challenging depending on the circumstances of your divorce.

Cash Buyer

If you'd like the house to be sold immediately, without dealing with the hassles of open houses and drawn out negotiations, then you can choose to sell to a cash buyer such as a real estate investor or a house flipper.

This type of buyer is a seasoned real estate professional who will purchase your house in as is condition. Since they are cash buyers, they don't have to wait on loan approvals and could typically close on a home sale quickly. You don't have to spend on repairs or upgrades when selling to Maryland cash buyers, which can sometimes become a point of contention as to who would be shouldering these additional costs.

Final Thoughts: Selling the House During a Divorce in Maryland

Going through a divorce is a gut wrenching experience. It is therefore understandable that you'd want it to be over sooner rather than later.

Sometimes, selling the house during a divorce in Maryland is the simplest, most straightforward solution. And here at Easy Outs Homes, we can help you do just that. We remove the hassles of dealing with real estate agents and their fees. You don't even have to do repairs, maintenance, or renovation work on your marital property before the sale, saving you lots of time and sparing you from making compromises! We buy all types of real estate in absolutely any condition.

What's more, cash buyers like us can close on your timeline! If it's really urgent, we can close in as little as 7 days, and as an added bonus, we even cover all closing costs so you get everything that's on offer. Fill out our form to get started!

You can reach us at 443-616-5486 if you have any questions!

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