Real Estate and Divorce

Divorce is tough, real estate is even harder

Divorce is never easy—especially when real estate is involved. Whether you’re dividing the family home or investment property, things can get complicated. This guide will help you understand how property is handled during divorce, especially in states like Illinois.

Learn how real estate is divided during divorce, from marital vs. nonmarital property to buyouts, co-ownership, and tax impacts.

Marital vs. Nonmarital Property

Before splitting real estate, you need to know who owns what. Most states, including Illinois, divide property into two types:

• Marital Property: Anything bought during the marriage, even if only one name is on the title.

• Nonmarital Property: Assets one spouse owned before the marriage or received as a gift or inheritance.

In Illinois, nonmarital property may also include:

• Inherited assets,

• Property bought with nonmarital funds,

• Growth in value of nonmarital assets (if kept separate),

• Other items outlined by law.

A prenup or postnup can also define property ownership. Knowing how your home or other assets are classified is a key first step.

How States Divide Property

States use two main systems to divide property during divorce:

1. Community Property: Used in nine states like California and Texas. Assets are split 50/50.

2. Equitable Distribution: Used in most states, including Illinois. Courts divide property based on what’s fair, not always equal.

In Illinois, the court considers:

• Each person’s contribution to the property,

• Length of the marriage,

• Alimony or support orders,

• Any signed agreements,

• Each spouse’s income, age, debts, and health,

• Child custody arrangements.

The court tries to make a fair decision—not just a 50/50 split.

What Are Your Options for the Home?

Couples have a few ways to handle the house or other real estate:

• Sell the Property: You split the profits after paying off the mortgage and fees.

• Buyout: One person pays the other for their share and keeps the home.

• Co-Ownership: Some ex-spouses agree to keep owning the home together for a while, often for the kids’ sake.

Buyouts carry risk. The person keeping the home could lose money if the market drops. On the flip side, the person selling might miss out if the home’s value rises.

Co-owning can also be tricky. Both people stay on the mortgage. You’ll need to agree on who pays what—and who gets tax benefits.

Watch Out for Taxes

Taxes can be a hidden issue in divorce. Luckily, most property transfers between spouses are not taxed—if they meet certain rules.

To avoid taxes, transfers must:

• Happen within one year of the divorce, or

• Be written into the divorce agreement and done within six years.

But there’s a catch: the person receiving the property gets its original tax basis. That means future gains could lead to a big tax bill.

If one parent stays in the home for years after the divorce, they may owe capital gains taxes when selling later. That might not happen if the couple had sold the home together while married.

Rental or investment properties add more tax rules:

• The person receiving the property may lose tax breaks if they don’t meet activity requirements.

• Any unused losses get added to the property’s value—but only for the person who keeps it.

Final Thoughts

Dividing real estate in divorce isn’t just about who gets what—it’s about making smart choices that protect your future. Talk to a divorce lawyer, financial advisor, or real estate expert who knows your state’s laws.

Thinking about what to do with your home during a divorce? Get advice early so you can move forward with confidence with Christopher Dewilde 

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