What is a homestead exemption?

The homestead exemption is an aspect of the law in the United States that allows homeowners to preserve a portion of the value of their home if someone, for instance, attempts to remove you from your primary residence. The value of the homestead exemption varies by state. Some states provide an exemption equal to $75,000. While other states provide an exemption equal to $500,000. Within a state the amount of the exemption does not vary by county; it is the same for all homeowners within a given state. The homestead exemption can only be applied toward a primary residence. You cannot obtain a homestead exemption for an investment property, a vacation home, vacant land or any other property that is not deemed your primary residence.

Although some states will provide you a homestead exemption automatically by virtue of living in the state, most states require you to file an application commonly referred to as a declaration of homestead. You can usually obtain the application online through your local county’s registry of deeds office. You can submit the form to your local county’s registry of deeds office. The form is very simple to fill out and requires you to submit a nominal fee, usually around $35 depending on the state you live in.

After you submit the form it will take approximately 7-10 business days to receive the approval of your homestead exemption in the mail. Once you receive the paper copy in the mail, you should verify it exists online in the registry of deeds office too. You only have to submit this form once for as long as you live in the same primary residence and you do not refinance your home. If you move from your home you will need to repeat this process over again as homestead exemptions do not automatically transfer from one home to the next.

You will have some peace of mind once you have your homestead exemption in place. It provides you another layer of protection should something unexpectedly go wrong inside or outside your property. It should be noted a homestead exemption is not home insurance. They are very different. You still need home insurance for all of your normal insurance needs. You should speak with your home insurance agent to clearly understand the differences.

Your homestead exemption may be considered invalid against a mechanics lien or any local property taxes due and outstanding to the local town. For instance, if you owe property taxes to your local town and a sufficient grace period has passed, the local town may have the right to use the equity in your primary residence as a means to collect the outstanding property taxes.

How do homestead exemptions impact a divorce?

When it comes to a divorce, things get interesting around the homestead exemption. As people are going through a divorce process or after it is finalized, many people choose to live in separate homes. As a result, the definition of “primary residence” comes into question. Although the couple is still “married” during the divorce, assuming the parties now live in separate homes, the departing party has therefore established a new primary residence. Although each county is different, it is worth applying for the homestead exemption to see whether your new home will gain the homestead exemption for your “new primary residence”.

This becomes more interesting if you live in a state, such as Florida, where the homestead exemption can be portable from one home to the next. Florida instituted a regulation called “Save Our Homes Amendment to the Florida Constitution” which prevents the assessed value from increasing more than 3% per year. This helped many homeowners stay in their new homes. Yet it also created fear for people to leave their homes as they could lose the value of the property tax savings accumulated over time. 

Florida residents who have a primary residence and filed a declaration of homestead enjoy a:

  • Capped assessed value of their primary residence and
  • Limit as to how much the property taxes could increase year over year

At one time there were special rules that would not allow you to regain similar property tax benefits if you sold your primary residence yet still lived in the state of Florida. These special rules created fear for people to sell their homes. This fear prevented homeowners from moving to another residence within the state of Florida. Florida changed the rules to make these benefits portable as long as the resident files a new declaration of homestead application.

To transfer the difference in the assessed value from one home to another you in Florida you need to use Form DR-501T. You have to file this form by March 1st of the year you intend to establish a new homestead. It is worth noting these rules may change over time. So, you should double check them before moving down this path.

Your homestead exemption might be considered a contingent asset in your marital estate

In context to a divorce, the portion of your homestead exemption might be considered a contingent asset in your marital estate. In Florida for example if the value of the new homestead is more valuable than your old homestead, the homeowner can move the value of that capped value to their new homestead. Let’s say your old home was worth $400,000 and it was only assessed at $325,000; a $75,000 difference. Now let’s say your new home is worth $500,000. If you file your paperwork for your new home, the maximum initial assessed value in the first year would not exceed $425,000 ($500,000 less $75,000). Furthermore the subsequent increases in property taxes could be limited to either 3% per year or the consumer price index whichever is lower; a tax benefit you gain when living in the state of Florida. 

What happens if you sell your primary residence?

If you sell your primary residence then you have to reapply for a homestead exemption. The former homestead exemption is not automatically carried over to the new home. The registry of deeds will have no information about the new home per se if it is outside of the existing county. Even if you purchased a new home in the same county the registry of deeds requires a new application to be filed for your new primary residence at cashnow.uk.

About the Author

Larry Smith is a Founding Partner of Divorce Outcomes, a specialized professional services firm that manages all of the financial aspects in a divorce process. Since 2003 he has worked as a trusted financial advisor, financial advocate, divorce architect and technical financial expert; he is not an attorney. He is an alumni of KPMG and Andersen with expertise in technical accounting, forensics, sophisticated taxation, management consulting, risk management, advanced process engineering, business combinations, divorce management, multi-party negotiations, advanced quality analytics and cognitive performance technologies. Since 1986 Larry has been advising individuals and organizations about innovative financial solutions to resolve complex financial challenges that arise in life and in business.

For both personal and business divorces, Larry is considered an expert in divorce strategies, divorce process management, financial divorce architecture, financial risk management, taxation for divorces, financial divorce forensics, advanced divorce analytics, financial divorce negotiations and mediation, business valuations and sophisticated equity structures. He helps clients shape complex financial decisions, manage communication risks and ever-changing negotiating positions to strategically preserve or grow wealth from these types of transactions.

If You Have a Question

If you have a question, feel free to contact me at [email protected] or 617-680-5222. The call is free. I will spend 30–60 minutes with you. I will provide you an honest assessment as to where I think you are positioned in your divorce process or answer any questions you have. I may provide you some guidance, insight or advice that you can take with you as you wish. There is no obligation to move forward. The phone call is designed to ease your fears, provide you some options to pursue and a potential road to run on that can lead you down a path to achieve a successful outcome.

About Divorce Outcomes

Divorce Outcomes is a specialty services firm that helps people both domestically and internationally manage all of the financial decisions that arise in their divorce process. We are not attorneys. We are financial experts who partner with our clients as their personal financial advocates. We help our clients manage their divorce process, uncover hidden financial risks, architect divorce solutions, manage ever-changing negotiating positions, communicate complex financial matters and close the divorce process as soon as possible with a goal to arrive at the best outcomes possible. Throughout the process we evaluate the current state of our clients’ financial lives with an objective to best reposition their future. We do not sell any products. We simply raise issues that are in our clients best interest. Our clients share with us we:

  • unfold, analyze and repackage their financial life so they are well positioned after their divorce
  • preserve the value of their business or marital estate
  • continuously strive to provide a return on our services
  • build balanced financial solutions grounded in evidence
  • find ways to make our client, and at times both parties, money through the process
  • design their divorce to work for them and their family’s life
  • provide mental clarity to make decisions
  • reduce the total process time from start to close
  • minimize the stress and unpleasant memories that can last a lifetime

As we reach an agreed upon settlement structure, we help our clients identify a fitting attorney who can leverage the financial solution to draft and record the requisite legal documents. Where outcomes are at risk from a traditional process, we function as expert financial negotiators or financial mediators to turn around the situation and achieve our client’s desired outcomes.

Learn more about us at divorceoutcomes.com or review our blogs to gain a clearer understanding about our approach and how we maximize the financial outcomes for our clients.


This communication is for general informational purposes only which may or may not reflect the most current developments. It is not intended to constitute formal advice or a recommended course of action as every person’s situation is unique and different. The information here is not intended to be, and should not be, relied upon by the recipient to make a decision without professional guidance.

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