Cape Cod, Nantucket, and the Berkshires: How a Divorce Financial Planner Approaches Multiple Residences in a High Net Worth Collaborative Divorce
The second home is often the asset that generates the most conversation and the least careful analysis in a high net worth Boston divorce. The Cape house has been in the family for twenty years and hosted every Thanksgiving. The place in Nantucket was the spot where the kids learned to sail. The Berkshires property was supposed to be the retirement plan. By the time couples sit down with a divorce financial planner to work through the marital estate, these residences carry emotional weight that often pushes the financial questions to the back of the discussion. That’s where settlements get built on assumptions that don’t survive the years that follow.
Multiple residences create real complexity. Each property has its own cost basis, its own tax exposure on sale, its own carrying costs, and its own role in the cash flow picture. Getting these numbers right before negotiation begins is the difference between a settlement that holds up and one that surfaces problems at the next property tax bill.
The federal capital gains exclusion under Section 121 of the Internal Revenue Code lets a married couple filing jointly exclude up to $500,000 of gain on the sale of a primary residence, provided both spouses have owned and used the home as their principal residence for at least two of the five years before the sale. After the divorce, that exclusion drops to $250,000 per individual filer.
For a couple who bought a Wellesley, Newton, or Lincoln home in the 1990s or early 2000s, the appreciated value can easily put gains above the $250,000 individual threshold while still fitting under the $500,000 joint figure. Selling the home as part of the divorce settlement, while both spouses still qualify for joint filing treatment, can preserve gain shelter that disappears once the decree is entered.
The mechanics here matter. Filing status is determined at year-end. A couple who finalizes a divorce on December 28 files as single for the entire year. A couple who waits until January files jointly for the prior year. The timing of sale and the timing of decree interact in ways that produce different tax outcomes for the same economic transaction.
Vacation properties don’t qualify for the Section 121 exclusion at all. The gain on the Cape house, Nantucket cottage, or Berkshires home is fully taxable at long-term capital gains rates plus Massachusetts state tax plus the net investment income tax for higher earners. For a property purchased in 1998 for $400,000 that’s now worth $2 million, the federal and state tax exposure on sale can run well into six figures.
Cost Basis and the Records Problem
Cost basis on a long-held second home is rarely straightforward. The original purchase price, capital improvements made over decades, additions, renovations, and the closing costs from acquisition all factor in. Most couples don’t have organized records of what they spent on the kitchen remodel in 2007 or the addition in 2013. Without documentation, the IRS default position is that the basis is the original purchase price, which inflates the reported gain on sale.
A careful divorce financial planner working as financial neutral pulls together what records exist, reconstructs what can be reconstructed, and produces a basis schedule that both spouses agree to before the property value gets plugged into the settlement model.
Carrying Costs in the Post-Divorce Cash Flow Picture
A house in Chatham, Edgartown, or Stockbridge generates ongoing expenses whether anyone is in it. Property taxes, insurance, maintenance, utilities, landscaping, opening and closing for the season, possibly a property manager. These numbers add up to figures that are easy to absorb when two incomes fund one household and harder to absorb when one income funds half of it.
When a spouse asks to keep the vacation property in the settlement, the cash flow analysis should reflect what holding the property actually costs over the next ten, fifteen, twenty years. That includes:
- Property tax escalation, which in many Massachusetts vacation communities has run well above general inflation
- Insurance, including the rising cost of coastal property coverage on the Cape and Islands
- Major maintenance that comes due on roof, HVAC, septic, and other systems on a predictable cycle
- The opportunity cost of capital tied up in a non-income-producing asset
A house worth $3 million carrying $80,000 a year in costs eats $800,000 over a decade before any major repairs. That figure belongs in the modeling alongside the asset value, not in a footnote nobody reads.
The Rental Income Question
Some couples plan to offset carrying costs by renting the property during peak weeks. The economics vary widely. A Nantucket house in a prime location during August commands strong weekly rates. A Berkshires property outside Tanglewood season is a different market. Rental income also brings management complexity, wear on the property, restrictions in some communities, and tax filings that may not have been part of the picture before.
Building rental assumptions into the settlement cash flow requires defensible figures based on what comparable properties actually rent for, net of management fees and the expenses that come with rental use. Optimistic rental projections are one of the more common ways second-home settlements end up unworkable.
Three Common Settlement Structures for Multiple Residences
Couples generally arrive at one of three approaches once the analysis is done:
One spouse keeps the primary residence and the other keeps the vacation property, with offsetting adjustments to the rest of the estate to balance the values. This works when both properties are wanted, the values are comparable enough to balance, and both spouses can sustain the carrying costs from their share of remaining assets and income.
Both properties are sold during or shortly after the divorce, with the net proceeds divided. This simplifies the financial picture and eliminates carrying cost exposure but gives up properties with sentimental value and locks in tax exposure on the vacation home.
One spouse keeps both residences in exchange for taking a smaller share of liquid assets or retirement accounts. This concentrates risk in real estate, which can be appropriate when one spouse strongly values the homes and the other prefers liquidity, but the analysis has to test what happens if real estate values decline or carrying costs rise.
Making the Decision Before the Decision Makes Itself
The right structure depends on the full financial picture, not on which house anyone feels most attached to. Working with a divorce financial planner who has analyzed multi-residence estates for Boston-area couples means the trade-offs get visible before settlement language gets drafted. The emotional question of which property to keep is still yours to answer, but the cost of that answer should be on the table when you make it.