Married couples are allowed up to $500,000 ($250,000 each) in profits, tax free from the sale of their principal residence, as long as they have owned and occupied the residence as a principal residence for at least two of the five years before the sale. Formerly, a spouse who moved out as a result of divorce lost his or her $250,000 deduction because it was no longer the principal residence. However, thanks to a change in the tax law, an ex-spouse can now retain that exclusion.
The law contains a specific provision relating to property used by the spouse of a former spouse pursuant to a divorce decree (26 U.S.C. § 121 (d)(3B)). This section states that “an individual shall be treated as using property as such individual’s principal residence during any period of ownership while such individual’s spouse or former spouse is granted use of the property under a divorce or separation instrument.”
This addresses the case of where an individual has retained ownership in the house but where the former spouse occupies the house for a period of more than 3 years from the time the owner (the non-occupying individual) has vacated the home. This allows the non-occupying individual to exclude up to $250,000 of gain when the house is sold, even though he or she did not actually occupy the home for two of the last five years before the sale.
To qualify, the spouse who moved out must remain an owner and the divorce or separation agreement must grant that spouse the use of the home. If a spouse who is the sole owner remarries, the new spouse must live in the house for two years to qualify for the full $500,000 exclusion.
The new Georgia child support guidelines become effective January 1, 2007, and apply to all pending civil actions on or after January 1, 2007. Under the new guidelines, there are several steps that are used to arrive at a child support obligation. First, the gross income of both the mother and the father is determined. This income includes amounts from all non-exempt sources and includes: salary, wages, commissions, self-employed income, bonuses, overtime pay, severance pay, pension and retirement income, interest income, dividend income, trust income annuity income, capital gains, Social Security disability payments, worker’s compensation benefits, unemployment benefits, judgments from personal injury claims or other civil cases, gifts, prizes, alimony from persons not in the subject case, assets which are used for support of family, fringe benefits that significantly reduce living expenses, and any other income including imputed income. Variable income such as commissions or bonuses must be averaged over a reasonable period of time.
After the gross income of both the mother and father is determined, the income may be adjusted in three ways. If there is self-employed income, there is a reduction for one-half of the self-employment taxes being paid. Secondly, if either parent is paying child support under a preexisting child support order, the monthly gross income of such parent is reduced by the amount of monthly support such parent has been actually paying. Finally, if either parent is supporting his or her own children living in the home, but who are not the subject of this child support determination, the court in its discretion may reduce the gross income after calculating a theoretical child support order. This final adjustment will be difficult to obtain since the court must find the failure to do so would cause a financial hardship on the parent and that such adjustment is in the best interest of the child in the case at hand.
For many people going through a divorce their biggest asset is their home or in legal speak, the marital residence. Deciding what to do about the marital residence is often a major issue in a divorce. There are a few different options when it comes to splitting the marital residence.
One option is for one spouse to keep the house and buy out the other spouse’s share. Another option is for one spouse to be granted exclusive use for a specified period of time, usually when the youngest child turns 18, after which the house will be sold. Finally, the house can be sold outright with the profits being allocated to each spouse.
Should you sell your house? Hard as it may be this is a decision that needs to be made devoid of emotions. As a practical matter take into consideration whether or not it is financially beneficial to keep the home. If not and you do decide to sell here are a few tips to help you through the process.
Time is money: Put your home on the market as far in advance as possible of purchasing a new one. Remember that when people buy and sell a home there usually is a domino effect. Closing and moving dates have to be coordinated, and the more firmly everyone commits to a window of dates and sticks to them, the better for all involved. Put all agreements about dates in writing, and protect yourself by negotiating financial penalties for failure to live up to the agreement.