Avoid This Mistake When Settling on The Marital Home in Divorce

Ed Kerns |

A recent divorcee told me how her divorce resulted in her owing the IRS over $200,000 in capital gain taxes. When the divorcee confronted her attorney about the situation he simply stated, "I don't want to hear about it!" So, what went wrong?

In this case, the Marital Settlement Agreement (MSA) stated that her ex-spouse was responsible for refinancing their marital home within 60-days of the finalization of their divorce decree (issued in 2010) and provide her a cash settlement. Unfortunately, the ex- did not fulfill his part of the agreement and neither side acted on the matter until 2019. By this time the frustrated divorcee filed a motion to force her ex- to put the home up for sale within 15-days.

The home sold quickly and generated a large capital gain. The ex- was able to exclude $250k of capital gain from his half of the sale while she had to realize 100% of the capital gain from her half. This was because no one had told her that she would forfeit her capital gain exclusion if she did not live in the home for at least two of the last five years. Had she consulted with a Certified Divorce Financial Analyst® (CDFA) from the beginning she would have been informed about this rule. Divorce is hard but you don’t need to go it alone.