Going through a divorce can turn your world upside down, leaving you feeling lost about your life and what comes next. Many people naturally want to hold onto familiarity by staying in the family home. However, it's important to realize that this decision could end up being very expensive.

Let's take a step back and consider the broader perspective. A house serves as a place to live but doesn't contribute to your income or lifestyle directly. If you and your spouse lived in the house for a significant period, there's likely a considerable amount of money tied up in its value. If you're granted the house in the divorce, it could be the most significant asset in the settlement. For instance, if the house is valued at $400,000 with $300,000 in equity, half of that equity is yours, and the other half belongs to your spouse. By keeping the house, you're essentially tying up $300,000 of your settlement. However, that same money could potentially generate over $13,000 annually if invested wisely. Additionally, don't forget about the ongoing costs of maintaining the house, which will require additional income to cover.

Hold on, there's more to consider! The potential tax implications in the future could be significant. If you were to sell the house while still married, the $300,000 capital gain would typically fall within the marriage exclusion, allowing for up to $500,000 tax-free. However, once the house is transferred solely into your name, if you sell it with a $300,000 gain, you'll only be eligible for a personal exemption of $250,000. This means you could owe capital gains tax on $100,000 of the gain, amounting to $15,000. It's crucial to ensure your attorney has factored this into your settlement discussions. This is why I advocate for mediated divorces with a financial neutral to provide guidance on such matters.

Divorce is undoubtedly challenging, but it also presents an opportunity for a new beginning. Ensuring that you're on solid financial ground is crucial for your future. To fully grasp the implications of any property settlement you're considering, consider consulting with a Certified Divorce Financial Analyst® (CDFA®). They can shed light on various financial matters involved. Remember, you only have one shot at getting your settlement right.