What to Do with a Second Home in a New York Divorce: 4 Options Explained

Legal Options and Practical Considerations for NYC and New York State Couples

Divorcing couples in New York who own a vacation home or investment property face one of the most complex decisions in their separation. Whether it's a weekend retreat in the Hamptons, a cabin in the Catskills, or an investment condo upstate, second homes carry both emotional weight and significant financial implications, including potential capital gains taxes. Second homes are not entitled to the capital gains tax deduction under the tax code available on primary residences.

As a Manhattan-based divorce mediator  who has mediated countless of matrimonial cases through the New York Supreme Court Mediation Programs, I've guided many couples through these decisions. Below, I share the most common options that my clients tend to focus on and the key questions you'll need to address.

DISCLAIMER: This post contains general legal information for educational purposes only and does not constitute legal advice. This content does not create an attorney-client relationship. You should not act on any information here without seeking advice from a qualified attorney licensed in your jurisdiction.

Overview

Under New York's equitable distribution laws in the case of an annulment, divorce or separation, New York State DRL §236, marital property, including second homes acquired during the marriage, must be divided through equitable distribution.  This does not mean equally. In mediation, it is the two of you who craft solutions that work for the two of you and your family. The four primary approaches where marital property includes a second home are:

•       Selling the second home and dividing the proceeds

•       Having one spouse buy out the other

•       Deferring the sale through continued co-ownership

•       Using the second home as an asset offset

There is no single "right answer." Every family is different, and in mediation, you decide what's best for your situation. You control the outcome, not a judge.  A judge has thousands of cases. They do not know you or your family. In mediation, you get to make the decisions that are going to directly impact you and your family.

Option 1: Selling the Second Home and Dividing Proceeds

Many of my New York clients choose to sell the second home and divide the net proceeds. This is often the cleanest and most straightforward solution, converting an illiquid asset into cash that can be divided.

Key Questions to Address

Calculating net proceeds: In mediation, we generally define net proceeds as the sale price minus the outstanding mortgage, closing costs (title search, transfer taxes, and other expenses), broker fees, staging costs, and any repairs needed to prepare for sale. There may be reasons for including other factors.

Finding a broker: How will you select a real estate agent? One approach is for each spouse to propose two or three brokers and then discuss them.  Together you can agree on one.

Setting the listing price: Will you use online valuations or hire a professional appraiser? Online valuations are far less expensive. If you choose to get a professional appraisal, typically both spouses share the cost of a first appraisal. If one party believes the appraisal is too low or too high, that party usually pays for a second appraisal. The agreed upon value is typically the average of the two.

What if it doesn't sell: How long will you wait before reducing the price? By what percentage? I encourage my clients to agree in advance on a timeline for price reductions. It is better to agree to this timing in advance to avoid disagreements later. In addition, I have my clients discuss a minimum acceptable offer usually within a certain percentage of listing price.

Repairs and preparation to sell the house: Typically the broker will make recommendations for repairs and staging to help with the sale. My clients discuss what is the maximum they are willing to spend. Will these costs be paid for from marital funds or will they be paid by one party and reimbursed from the sale proceeds?

Pros and Cons of Selling

Advantages: You convert real property into liquid assets for a simpler resolution. You eliminate ongoing disagreements about maintenance or use. You no longer have to worry about property taxes, insurance, or carrying costs.

Disadvantages: You may face capital gains tax on any appreciation (second homes do not qualify for the primary residence exclusion, see IRS Publication 523 for details). You may also have to prepare for a sense of loss and nostalgia for the property.

Option 2: One Spouse Buys Out the Other

The second most common approach in my practice is a buyout, that is where one spouse keeps the second home and compensates the other for their share of the equity.

Key Questions to Address

Determining fair market value: Like with a sale, you'll need an agreed-upon valuation. Most often my clients agree on the buyout price based on the average of two independent appraisals.

Mortgage considerations: With current interest rates, many clients prefer to assume an existing mortgage with a lower rate rather than refinancing. However, you will need to determine if the existing mortgage is assumable. If it were assumable, the purchasing party must still qualify for the mortgage with the lender.

Removing the other spouse: The spouse being bought out, or selling their share of the property, must make sure that they will be removed from both the deed and the mortgage. This is essential for protecting their credit and liability.

Funding the buyout: Will the buying spouse pay cash, refinance, or offset the buyout against other marital assets? For more on how this interacts with other financial decisions, see my article on Child Support and Maintenance in Divorce.

Option 3: Deferred Sale Through Continued Co-Ownership

When market conditions are poor or refinancing isn't feasible, some couples choose to remain co-owners for a set period—typically 12 to 24 months. This approach requires significant cooperation and isn't right for every family.

Key Questions to Address:

Timeline: Will you set a hard sell date or remain flexible based on market conditions?

Use of the property: Will one or both of you continue using the home? Will you rent it out? If so, how with the rent be shared?

Carrying costs: How will you share mortgage payments, property taxes, insurance, and utilities? What if these costs increase?

Repairs and improvements: I typically have clients agree on a threshold amount for repairs that either party can authorize. In mediation the two of you agree on that amount. If the repairs are above that, mutual agreement is required. This would require a discussion on getting estimates from at least two contractors to do the repairs.

Future buyout option: Do you want the option for one spouse to buy out the other in the future?

Exit deadline: Many couples set a date by which all financial connections must end.  A sale, buyout or offset must occur by that date.

In all these arrangements, I encourage clients to focus not on predicting the market, but on how much financial exposure they feel comfortable bearing. For more on managing financial transitions, see Life Insurance in a Divorce.

Option 4: Using the Second Home as an Asset Offset

In an asset offset, one spouse keeps the second home while the other receives marital assets of approximately equivalent value. Most often these include retirement accounts or investment portfolios.

Why This Requires Careful Analysis

This approach requires careful valuation from financial professionals because a $900,000 retirement account is not the same as a $900,000 second home. Here's why:

Tax treatment differs: Common marital assets include IRA accounts.  Not all IRA accounts are the same. Traditional IRAs are tax-deferred (you'll pay income tax on withdrawals), while Roth IRAs are tax-free. When distributions begin, many retirees are in a lower tax bracket. This means that your distributions from a Traditional IRA will be taxed at a lower rate.

The second home has ongoing costs: Property taxes, insurance, assessments, maintenance, and repairs are paid with after-tax dollars. In addition, real estate markets fluctuate and carrying costs can be substantial.

The value of the assets in the IRA can fluctuate: The value of the such assets can increase or decrease significantly and this may not correlate to changes in real estate values.

No capital gains exclusion: Unlike your primary residence, you are not entitled to the capital gains tax deduction when selling a second home.

For more on retirement assets in divorce, see my article on Pension Rights After Divorce.

Comparing your options at a glance

4 Options are Sell & Divide, Buyout, Deferred Sale, Asset Offset. Check what they’re Best for, Key benefits, and Main challenge with each of them.

Frequently Asked Questions

Do I have to sell my second home in a New York divorce?

No. Selling your home is just one option. In mediation, you discuss other options including buyouts, deferred sales, or asset offsets, In mediation, I work with you to craft a solution that works best for you and your family.

Will I owe taxes if we sell our second home during the divorce?

It depends. Unlike your primary residence, second homes do not qualify for the capital gains exclusion (up to $250,000 for individuals or $500,000 for married couples filing jointly). You may owe capital gains tax on any appreciation. You need to consult a tax professional for advice specific to your situation. You can also see IRS Publication 523 for more details. I work with several divorce financial professionals that you can speak with.

Can my spouse buy out my share of our second home?

Yes, buyouts are common. The key issues are agreeing on the fair market value, determining whether the existing mortgage can be assumed, if the purchasing party will qualify for the mortgage, and ensuring that the party being bought out is removed from both the deed and mortgage.

What if we can't agree on a price or broker?

In mediation, the two of you discuss all of these issues.  You explore what each of you needs, which is different from what you want. Common solutions include using the average of two independent appraisals for determining the price. For selecting a broker, one option is for each spouse to propose two brokers and together select one.

Finding the Right Solution for Your Family

While not everyone owns a second home, they represent significant assets for the families who own them—and often become central points of negotiation in divorce. Whether the goal is a sale, a buyout, a deferred sale, or an asset offset depends on each family's financial situation, relationship dynamics, and future plans.

Mediation allows the two of you to make the decisions. You have control over the outcome. In mediation, you can have these conversations openly and work toward an agreement that reflects your priorities. You can take your time discussing the different options and finding the right one for you and your family.  The key is that it is the two of you talking and making these decisions. You know what is best for your family. In court it is a judge who will decide.  Through mediation, both of you can discuss all the practical details regarding pricing, timing, repairs, and carrying costs. Learn more about why mediation works as an alternatives to court

Ready to discuss your options? I offer a complimentary initial consultation to explain how mediation can help you reach an agreement that works for your family. Contact me. or email carmen@rodriguezlawandmediation.com to schedule a conversation. Mediación disponible en español.

About the Author

Carmen M. Rodriguez is a divorce and family mediator based on the Upper West Side of Manhattan. A graduate of Brown University and Columbia Law School, she has mediated over 500 cases in matrimonial, family, and commercial matters. Carmen serves on the mediation panels of the United States District Court for the Southern District of New York, the New York Supreme Court (Manhattan, Brooklyn, Queens, and Staten Island), and the New York City Family Court. In 2024, she received the James Duane Award from the Southern District of New York on behalf of the mediators of the SDNY for her mediation work. She is fluent in Spanish and offers all services in English and Spanish.

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