Every divorce settlement requires the parties to divide their property as part of ending the marriage. One of the most essential shared assets is the marital home. Both spouses can strongly relate to the house, turning divorces into contentious court battles.
The alternative is to “buy out” the house from your former spouse. It creates an opportunity to resolve the problem instead of battling it in court. Both parties save money on court fees, and you maintain control of the situation rather than the court.
What Is a Divorce House Buyout?
A divorce house buyout is when the buying spouse pays the other spouse the value of the home or their share of the mortgage.
By doing this, the buying spouse can become the official owner of the property. In many cases, the family home is the most valuable asset a couple owns, and it can be challenging to divide the property equally between both parties. A buyout allows one spouse to keep the home and pay the other for their share of the home’s equity.
The spouse who wants to keep the home must decide how to fund the buyout, which can be done through refinancing the mortgage, taking out a home equity loan, or using cash savings. Once the buyout is complete, the spouse who kept the home becomes the sole owner of the property.
Instead of having to fight over who gets the house, you both agree on the owner of the property as part of a divorce agreement. This provides many different benefits to both parties:
Reduced Friction in the Family
If you have any, divorce is a difficult time for you, your former spouse, and your children. A home buyout takes one of the most troubling issues out of the divorce. Many spouses can work out a fair deal that benefits them and their children.
Protecting the Children
Divorce can be a traumatic experience for children. Besides potentially witnessing their parents argue over issues, they may also have to move when the court has finalized child custody. They may have to change neighborhoods and schools and make new friends. In other words, they may have to start a new life.
Buying out a spouse in a divorce can help maintain stability in the children’s lives. The custodial parent can buy out the other parent from their home so the children can stay where they’re already accustomed to, which can benefit their well-being.
Saving Litigation Costs
A divorce can be costly. It usually requires lawyers and extensive negotiation over shared assets, leading to heated arguments, especially when it’s time to answer the question, “Who gets the house?”
The cost of litigating this issue can be very costly. Plus, there’s always a possibility that either spouse won’t be happy with the judge’s decision.
The more you can avoid disagreements, the less time and money will be spent during the negotiation process.
This is where a house buyout comes in. Spouses can negotiate property ownership at their leisure and with greater control than having it done in court. You can discuss things in a house buyout where both parties can voice their concerns and mutually agree.
How to Calculate a House Buyout in a Divorce
Calculating a house buyout in a divorce involves determining the house’s value and each spouse’s share. Here are the steps to calculate a house buyout in a divorce:
Determine the house’s current market value.
The house’s value can be determined by getting an appraisal from a professional appraiser or by looking at comparable sales of similar properties in the same area. This information will be used to determine the house’s fair market value.
Determine the outstanding mortgage balance.
The outstanding mortgage balance is the amount that still needs to be paid off to the lender. This information can be obtained from the mortgage lender or by checking the most recent mortgage statement.
Calculate the equity in the house.
Equity is the difference between the house’s current value and the amount still owed on the mortgage. For example, if the house is worth $500,000 and still has $200,000 left on the mortgage, the equity would be $300,000 ($500,000 – $200,000).
Determine each spouse’s equity share.
Equity ownership share will depend on the state’s laws regarding property division in a divorce. Some states use community property laws, where each spouse has a 50% ownership share. In equitable distribution states, the court will divide the property fairly and equitably based on various factors such as the length of the marriage, income, and contribution to the marriage. It’s essential to consult a divorce attorney to understand how ownership shares will be determined in a particular state.
Calculate the buyout amount.
Once each spouse’s ownership share of the equity has been determined, the buyout amount can be calculated by subtracting one spouse’s share from the other. For example, if one spouse has a 70% ownership share and the other has a 30% ownership share, the spouse who wants to keep the house must pay the other spouse 30% of the equity.
Determine how the buyout will be funded.
After determining the buyout amount, the spouse who wants to keep the house must decide how to fund the buyout. This can be done through refinancing the mortgage, taking out a home equity loan, or using cash savings.
Remember that this is just one aspect of the property division process in a divorce, and it’s always a good idea to consult with a divorce attorney for guidance on what is fair and equitable in the particular circumstances of a divorce.
Divorce House Buyout Calculation Example
John and Jane are getting divorced and own a house worth $600,000. They still owe $200,000 on the mortgage, so their equity in the home is $400,000 ($600,000 – $200,000). They live in an equitable distribution state, where the property is divided fairly and equitably.
After considering all the relevant factors, the court determines that John is entitled to 60% of the equity, and Jane is entitled to 40%. This means that John’s ownership share of the equity is $240,000 (60% of $400,000), and Jane’s ownership share of the equity is $160,000 (40% of $400,000).
Jane wants to keep the house, so she needs to buy out John’s ownership share of the equity. To do this, she needs to pay John $240,000. She decides to fund the buyout by refinancing the mortgage.
After refinancing, the new mortgage is for $300,000, which includes the $240,000 buyout amount plus the $60,000 remaining on the original mortgage. Jane owns the house outright, and John has received his share of the equity.
It’s important to note that this is just an example. The actual amount of the buyout and each spouse’s ownership share will depend on the specific circumstances of each divorce case.
What is the Process for a House Buyout?
A house buyout works best when it follows the proper process. It would be best to tender an offer by creating a divorce house buyout agreement, which your spouse must accept. There are two primary ways a divorce house buyout can occur in the divorce process:
1. Direct Buyout and Refinancing
When you want the house, your first option is to pay your spouse the value of their share in the house. If you both own the house without a mortgage, you will pay the value of your spouse’s share in the house directly to them. You can pay with your funds or seek financing from a bank. Once you accomplish that, you will officially own the house.
For many couples, the home is still subject to a mortgage. In that case, you will likely have to refinance the home with a new mortgage. This requires you to approach a bank for the mortgage buyout in a divorce. It’s an excellent option if you have good credit and can get approved by a bank for a loan.
This method allows you to retain other property items in the equitable division part of your divorce rather than giving up property to get the house. You may have important assets you want to keep, so direct payment for the house can help you achieve this goal.
Your former spouse can execute a quitclaim deed as part of the sale. This legal document proves that your former spouse has relinquished their rights to the property.
2. Equal Distribution of Other Assets
Another way to agree on a “buyout” of the home is to calculate its value and exchange assets equal to the house’s or spouse’s share. For example, if the home is valued at $200,000 and has equal ownership, your share is worth $100,000. Instead of paying this directly, you could exchange:
- Cars
- Accounts
- Investments and stocks
- Other valuable property
Exchanging assets saves you the trouble of refinancing, and you can handle this aspect of the divorce or separation agreement without the court getting involved. Your spouse will still require a quitclaim deed to relinquish their interest in the home.
Both methods require an appraisal of the home’s value to complete the buyout process.
How Do I Get a Property Appraisal for My Divorce?
Most couples will use a real estate appraiser to determine the value of their home. This service comes with a cost — usually in the range of $300 to $500. When the spouses work well together, they can pick a real estate property appraiser to determine the home’s value. Property appraisers will typically look at certain factors to determine the value of your home, such as:
- Comparable properties in the area (“comps”)
- The age and condition of the home
- The neighborhood
- The home’s exterior (curb appeal)
- Signs of water damage or mold
- Size of the home
- Safety features
- Home improvements and additions
If the home has recently been appraised, you can proceed with that figure to save time and money on another appraisal. Once the home’s value has been determined, you have a starting point for negotiations.
Fights Over Property Value
While it’s better if you can agree, not every couple will. In that case, you may need to hire separate appraisers. A less efficient option is to have the court decide the home’s value. The court may look at the parties’ competing values of the home and decide from there.
The court may instead hire an independent appraiser and use the value they give. This is usually costly and can make either party unhappy with the numbers.
Who Pays for a Home Appraisal in the Divorce?
A home appraisal is usually paid for in one of several ways:
- The “Purchasing Spouse”: You may agree to pay for the appraisal to help facilitate the agreement. Despite the relatively low cost of an appraisal compared to the buyout value, your spouse may not want to pay for the appraisal. If you agree to pay, they may be more willing to proceed.
- Cost-Sharing: The parties may agree to split the cost of the home appraiser.
- Separate Appraisers: The parties may choose to hire their appraisers. In this case, each spouse will pay their respective appraiser instead of sharing the cost.
Can I Force a House Buyout?
House buyouts need to be a mutual agreement. You can’t force anyone to accept an offer. If the spouse is adamant they want the house, court action will be taken to decide who will keep the marital home.
Instead, you can try negotiating with your spouse by telling them the benefits of being bought out. You can also try sweetening your offer.
Another alternative is to consider giving up your interest in the house. If your spouse doesn’t budge, consider an amount you feel is fair to cede your stake in the property. Your spouse may be willing to pay it to keep home ownership.
Ultimately, you have to decide what is right for you. A house buyout is one of the easiest ways to avoid litigation and a difficult divorce—when you can make it happen.
