A vacation home can be one of the most emotional assets in a divorce, and one of the most complex. Beyond deciding who “gets it,” you may need to consider buyouts, shared ownership, refinancing, ongoing carrying costs, and the tax impact if the home is sold.

In Massachusetts, property division is based on what is fair under the circumstances, not an automatic 50/50 split, (Massachusetts Legislature). That means a smart plan for a second home should account for both the legal framework and the real-world financial consequences.

Below are common approaches Massachusetts couples use to handle a vacation home, plus key issues to think about before you agree to a settlement.

Why vacation homes get complicated

Vacation homes often create unique pressure points:

• High ongoing costs: property taxes, insurance, utilities, HOA fees, maintenance, seasonal opening and closing, and repairs
• Financing issues: one spouse may want to keep the home, but refinancing may be difficult or expensive
• Family expectations: the home may be tied to extended family, shared use, or inherited funds
• Tax exposure: a future sale may trigger capital gains, and the primary home exclusion often does not apply
  

A settlement should not just say “Spouse A keeps the home.” It should spell out how the plan will actually work.

The tax piece people miss: capital gains and basis

When a vacation home is sold, capital gains tax is generally based on the difference between the sale price and the home’s adjusted basis. The basis is often the purchase price plus certain capital improvements. (IRS)

Many people assume the home sale exclusion will protect them, but that exclusion is generally tied to the sale of a main home and specific eligibility requirements. (IRS) A true second home often does not qualify, which means capital gains can be a major factor in settlement planning.

Divorce transfers can be tax-free now, but taxes may be deferred

Transfers of property between spouses, or incident to divorce, are generally treated as nonrecognition events for federal tax purposes. In many cases, the spouse receiving the property takes the other spouse’s basis, which means the built-in gain can follow the property and show up later when it is sold. (GovInfo)

Practical takeaway: if one spouse keeps the vacation home, that spouse may also be taking on future tax exposure. That should be part of the buyout math. 

Common ways to handle a vacation home in a divorce

Option 1: Sell the home and divide the proceeds

This is often the cleanest approach. It avoids ongoing entanglement and converts the asset into cash.

Settlement terms should address:

• who chooses the broker
• listing timeline and strategy
• repairs and staging decisions
• how carrying costs are paid until closing
• how proceeds and sale-related expenses are divided
• how any tax consequences will be handled

Option 2: One spouse keeps the home through a buyout

A buyout can work when one spouse has a strong reason to keep the property and the ability to carry it financially.

Key issues include:

• appraisal or agreed valuation method
• refinance or payoff plan, plus a deadline for removing the other spouse from liability
• how the buyout amount is calculated, including whether potential future tax exposure should be considered
• responsibility for repairs and carrying costs during the transition

Option 3: Shared ownership, with strict guardrails

Some couples choose shared ownership for a period of time, often to preserve family traditions or because an immediate sale is not ideal. This can work, but only with clear rules.

A shared-ownership agreement should spell out:

• a usage schedule and guest rules
• how expenses and repairs are approved and paid
• insurance responsibilities
• whether renting is allowed and how income is divided
• a clear exit plan (sale date, buyout trigger, or valuation process)

Without an exit plan, shared ownership can become a long-term source of conflict.

What to think about before you agree

Before you finalize a plan, it helps to confirm:

• how a title is held and whether a trust or LLC is involved
• mortgage terms and whether refinance is realistic
• total carrying costs and who will pay them
• basis and improvement records to estimate potential capital gains
• a workable mechanism for sale, buyout, or shared ownership
• detailed settlement terms that reduce future disputes

Contact Mansur Law Group

Vacation homes are emotional, but divorce agreements need to be practical and enforceable. If a second home is part of your divorce, getting clarity early can help you avoid costly surprises.

Contact Mansur Law Group or call us today at 978-575-8908 to schedule a confidential consultation.

This article is for informational purposes only and does not constitute legal advice. Every case is different.