How Selling Your Home Can Impact Your Settlement

Divorce is the termination of a legal marriage. Oregon law calls it dissolution of marriage. Spouses divorce every year in the United States. The Centers for Disease Control and Prevention (CDC) reports that the national divorce rate is 2.3 per 1,000 population. With the United States population of approximately 330 million people, the number of divorces is over 600,000 annually.

Since 2020, Oregon has had an average of nearly 11,000 divorces in Oregon per year. The couple may bring property into the marriage and acquire more during the marital relationship. During the divorce process, the court or the spouses designates the status of the property as marital or separate. 

Marital property consists of things they obtain during the marriage. Property that each spouse owns before marriage is separate property. It also includes property a spouse receives from a will, by inheritance, or as a gift during the marriage only to one spouse. 

The court must establish whether an item is separate or marital property. Separate property remains with the spouse who owns it. Marital property belongs to both parties, and in most cases, the judge determines how to distribute it. 

Oregon is an equitable distribution state, which means the law assigns marital property between spouses based on what is just and proper. However, the distribution does not always give each spouse an equal split of marital property. 

The court may not distribute the property in a manner that is favorable to both spouses. The parties can avoid losing ownership of specific possessions by agreeing on which property goes to each spouse. If they can agree on the distribution of the property, they can resolve the issue and focus on other divorce matters. 

When the spouses cannot agree, they each must file a Statement of Liabilities and Assets. They must list and describe all assets and liabilities, their values, and which party they believe should receive the property. 

One of the significant property items in a divorce is the marital home. Selling the house can impact equitable distribution in the court’s judgment for the dissolution of the marriage. It can also affect the agreement in a divorce settlement.

A divorce settlement is an agreement on the terms of the divorce, such as spousal support, child custody, parenting time, and property distribution. Oregon’s policy is to encourage settlement for suits for dissolution of marriage. The spouses put the agreement in writing, making a binding contract between the parties. The court reviews the agreement to ensure it does not violate the law or public policy.

The sale of the marital home before filing for divorce can benefit the settlement negotiations because the spouses can list the net amount as a part of their marital assets in the dissolution of marriage case. If the home has a mortgage, selling the house may pay off the balance and lower the marital debt. The spouses can decide how to split or assign a mortgage balance that the house sale does not cover. The profit from the transaction also can help to pay for expenses that arise in preparation for seeking a divorce.  

After the couple files for divorce, selling the marital home can be advantageous in the settlement negotiations. The spouse who is the higher earner asks for the proceed of the sale to offset other financial contributions to the other spouse, such as spousal support.

Spouses may have tax obligations that arise from selling the home. Tax consequence to a spouse is a factor the court considers when determining spousal support and property division in the dissolution of marriage case. The capital gain or loss of the sale of the home can affect the spouse’s income tax. Generally, a capital loss can reduce taxable income and lower tax liability. However, capital loss for selling personal-use property, such as a marital home, is not tax deductible. The potential of a spouse not having the advantage of the tax deduction can affect their negotiation for financial assistance in the divorce settlement.

Capital gain on the sale of the marital home can benefit both spouses. Although the parties are in the process of dissolving the marriage, they can choose to file their tax as married filing jointly. With this option, they can exclude up to $500,000 of capital gain from the sale to decrease the tax liability. The exclusion also may result in the spouses receiving a tax refund, which can factor into the agreement between the parties.

To schedule a consultation with one of our family law attorneys in Oregon or SW Washington, call us now at 503.222.9116 or write us.

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