Divorce is a time-consuming process that can take up to 12 months. One of the reasons it can be so lengthy is splitting up belongings — particularly, that of shared property. However, it’s not always necessary for both parties to change their address. One way to get around the hassle of dealing with a jointly-owned marital home is with a divorce buyout.
What Is a Divorce Buyout?
A buyout allows one party to purchase the other’s equity to acquire full ownership of the home. The amount needed to buy the other partner’s share is half of the marital property’s equity.
Home equity is calculated by taking the home’s value and subtracting what is still owed. For example, if a home is worth $300,000 and a couple has paid $200,000 towards their mortgage, they have $100,000 in equity. In this example, the party initiating the divorce buyout would be $50,000.
The money and deed would be transferred at closing with the title company. The other party is then removed from the title and previous mortgage paperwork.
Determining Home Value
Agreeing on the home’s value is perhaps the most contentious part of a buyout. It’s a process usually guided by a real estate agent before a sale. For this reason, a professional appraisal is the best way to determine fair market value.
Both parties should agree on the appraisal company to avoid arguments from the outset. This will reduce the likelihood of disagreements over the final value. If the parties disagree on the appraised value, it can prolong the process and lead to more time and money spent. Some cases warrant a judge to make the final determination.
Buying out another person’s equity doesn’t include other miscellaneous costs. Additional fees and charges to consider in a divorce buyout may consist of:
- Outstanding debt for home repairs or improvements
- Loan fees
- Tax obligations
- Title transfer fees
Although these costs may look small on paper, they can add up quickly. Divorce negotiations should include a plan for splitting the various required payments.
Divorce Buyout Financing
Sometimes a buyout isn’t feasible, especially for a person who must now rely on a single source of income. There are several ways to accomplish a buyout through financing.
One of the most popular ways of doing this is to apply for a cash-out refinance. This allows the person who will be keeping the home to access money from the home’s equity. Keep in mind, limited equity or poor credit will make this option more difficult.
It’s also important to note that alimony or child support isn’t always considered eligible income when it comes to qualifying for a mortgage on your own after a divorce. Every lender is different but in most cases, you’ll have to prove that you’ve received the money for at least six months and will continue to for at least three years.
One common fallback is to give the other party full ownership of some other marital asset, such as retirement accounts, cars, or other properties. This can help you fund a divorce buyout without taking on more debt.
Consider All Your Options
There are many cases where it’s advantageous for one party to stay in the family home, for instance, couples with children. Moving costs can be very expensive and staying put can save a lot of money. Current market trends could result in unfavorable conditions for selling a home.
Still, a divorce buyout isn’t always feasible. Divorce proceedings can be financially draining, leaving many couples deciding to sell their marital property. They can sell with a traditional agent or choose a company that buys houses for cash so that each party can get the capital they need to fund their separation.
Ask yourself these critical questions before you decide to take sole ownership of the shared marital home:
- Can you afford the monthly payment on your own?
- If your former spouse misses support payments, will you still be financially secure?
- Are you able to pay for the maintenance required for upkeep?
- How much equity will be left after the divorce is finalized?
Each state has differing divorce and shared property laws. Working with a skilled family law attorney can make the process easier and lead to a more equitable final result.
Article last modified on December 16, 2022. Published by Debt.com, LLC