Frequently Asked Questions: Timing of Selling the Marital Home in Colorado Divorce

There are generally three options for the marital home in a Colorado divorce:

Sell the home immediately. Selling the home and dividing the proceeds is often the simplest way to divide the equity and offers finality. Both spouses receive their share of the net proceeds after paying closing costs. This option eliminates ongoing financial entanglement, but requires both parties to secure new housing.

Buy out the other spouse's interest. One spouse keeps the home and compensates the other spouse for their share of the equity. This can be accomplished through a transfer of other marital assets or refinancing to withdraw cash.

Continue joint ownership temporarily. Both spouses remain co-owners of the property, typically with one spouse remaining as the resident. This arrangement usually includes provisions for eventual sale upon a triggering event such as the children finishing school, the resident spouse remarrying or cohabitating, or a specified date. C.R.S. 14-10-112(1) permits parties to enter into written separation agreements containing provisions for "the disposition of any property owned by either of them."

Writer’s Practice Experience Note: Parties can be creative about how to handle disposition of a marital home in agreements. However, courts will often take a simple, conservative approach in order to avoid having parties end up back in court over disputes based on continued shared ownership.

Capital gains tax may be a con sideration for some contemplating the sale of the marital home. Special rules protect divorcing spouses from losing capital gains exclusions:

Use period rule. If one spouse is granted temporary possession of the residence pursuant to a divorce decree or separation agreement while the other spouse retains title, the non-occupying spouse is treated as having used the residence during the period the occupying spouse used it. This means the non-occupying spouse can still qualify for the exclusion even though they did not physically reside in the home for two of the five years before sale, as long as they retained ownership interest.

Ownership period rule. If one spouse transfers the residence to the other spouse pursuant to a divorce decree, the receiving spouse can include the transferring spouse's ownership period when computing their ownership period for exclusion purposes.

The timing of the sale can significantly impact tax liability:

Sale while still married. If the couple sells the home before the divorce is final and both meet the use test, they can exclude up to $500,000 of gain if filing jointly. This provides the maximum exclusion amount.

Sale after divorce while jointly owned. If the home is sold after divorce while still jointly owned, and both spouses meet the use requirements (including the special use-period rule for the non-resident spouse), each can exclude up to $250,000 of their share of the gain. The total excluded gain can still reach $500,000, divided between the two former spouses.

Sale after one spouse receives the home in the settlement. If one spouse receives the home as part of the property division and later sells it, that spouse can exclude only $250,000 of gain (unless they have remarried and the new spouse meets the use requirement, potentially allowing the full $500,000 exclusion on a joint return). If the gain exceeds $250,000, the selling spouse will owe capital gains tax on the excess.

Cost basis is the original value of an asset for tax purposes, used to calculate capital gain or loss when the property is sold. For a home, the basis includes:

• The original purchase price
• Closing costs on the purchase
• Capital improvements made to the property (additions, remodels, major upgrades)

The basis does not include:

• Repairs and routine maintenance
• Mortgage balance

• Room additions or expansions
• Finishing a basement or attic
• New roof, HVAC system
• Deck, patio, or permanent outdoor structures
• Kitchen or bathroom remodels
• New flooring, windows, or doors (major upgrades)
• Landscaping (permanent features like retaining walls)
• Swimming pool installation

• Painting
• Fixing leaks
• Replacing broken fixtures
• Minor appliance repairs
• Routine HVAC or plumbing maintenance
• Lawn care and gardening
• Minor cosmetic updates

When substantial improvements have been made during the marriage, the parties should prepare a detailed list. This is particularly important when the home's value has appreciated significantly and may approach or exceed the $250,000 or $500,000 exclusion thresholds.

C.R.S. 14-10-108 authorizes the court to enter temporary orders during dissolution proceedings regarding "temporary payment of debts, use of property, maintenance, parental responsibilities, support of a child of the marriage entitled to support, or payment of attorney fees. Under C.R.S. 14-10-108(2), either party may request temporary orders for:

(c) Exclusive use and possession. The court may exclude a party "from the family home or from the home of the other party upon a showing that physical or emotional harm would otherwise result." This provision allows the court to grant one spouse exclusive possession of the home during the divorce when necessary for safety.

Temporary orders regarding the home remain in effect until superseded by the permanent orders in the dissolution decree and typically address:

• Which spouse has the right to reside in the home
• Who pays the mortgage, insurance, taxes, and utilities
• Whether the home can be listed for sale
• Responsibility for maintenance and repairs

Parties have substantial flexibility to agree on home disposition. Spouses can agree to sell the home, award it to one party, continue joint ownership, or structure creative arrangements such as deferred sales with triggering events.

Courts will enforce agreements unless unconscionable. The court will approve the property provisions unless the agreement is unconscionable considering the parties' economic circumstances. Unconscionability is a high standard, generally requiring that the agreement be extremely one-sided or that one party lacked meaningful choice or understanding. In general courts give substantial deference to the parties’ property agreements, however may scrutinize more closely when only one party is represented by counsel.