A divorce isn’t something anyone ever plans when they first put a ring on their finger, but sadly, around half of all marriages will end due to a split. With most divorces, one of the biggest assets to be argued over is the house. It doesn’t have to be that way, though.
If you want to do things amicably, looking at a house buyout might be a good idea. This is the easiest way to determine who gets the house without having to go to court while keeping both parties happy. Before you jump to the conclusion of duking it out in court, it’s good to learn about how buyouts work.
What’s A House Buyout?
A house buyout is precisely what it sounds like. It occurs when one spouse decides to buy the other spouse out of a house they own during the marriage. In other words, the buying spouse pays the other spouse according to the current value of the home or by offering to take over their share of the mortgage.
If the other spouse agrees to it, they will take the money but will have to cede ownership rights of the home.
How Does A House Buyout Work?
For a buyout to work, you will need to give an offer and have someone accept. That being said, buyout structures can change. There are two general ways to have this happen:
- One divorcing spouse will buy the home from the selling spouse using a refinanced loans. If you have good credit and want to keep more of your stuff, this is a good option. You will have to pay for the selling spouse’s share to buy them out of the house.
- One divorcing spouse trades in an equal amount of valuables for the spouse’s share of the home’s value. If you have a lot of equity, this can be an excellent way to save money.
With both buyout methods, you will need to figure out a fair assessment of the house’s value. This is because it’s assumed the house has changed value since you first bought it together.
How Is Your House’s Value Determined?
Most of the time, people will go through a real estate appraiser to get an accurate home valuation. This can cost $300 to $500 for the service, and it’s usually a payment that the buyer will need to cover. Both parties need to agree on the appraiser to move forward with the buyout.
Home Buyout Calculation in a Divorce Example
Let’s say you and your spouse own a home that appraises at $500,000. Let’s also assume you have a mortgage for $200,000 on the property. That means you have $300,000 in shared equity. When divided that means both the husband and wife would have $150,000 individually. To calculate the buyout you’ll need to use the following formula. Equity divided by two, plus any debt, as you’d be assuming the debt alone. So in the above example, you’d need to pay your spouse $150,000 and assume the $200,000 mortgage. If you’re refinancing you’ll need a new $350,000 loan.
Are There Any Fees That You Need To Know About?
The fees are usually dependent on the state you live in and the overall agreements you and your former spouse choose to work with. Many states will expect the buyer to cover all the closing costs, plus the broker’s fee.
With that said, many spouses can negotiate the price down as a way to avoid having to pay for repairs, maintenance, or even spousal support. So, while there may be fees, they can be mitigated if you’re both open to mediation.
Can You Force A House Buyout To Happen?
Here’s the thing about house buyouts: they have to be a mutual agreement. If you have a spouse that is adamant about staying in the house and they don’t want to move, you can’t force them to accept the offer.
That being said, you can always negotiate around the offer that you want to give them. While they may not take your initial offer, there’s a good chance that sweetening the deal can help you avoid time spent with lawyers.
When Does A Buyout Not Make Sense?
Though buyouts usually work well with divorcing couples, there are moments where a buyout doesn’t make much sense. There are even situations where a house buyout isn’t going to be possible.
If you can’t agree on the terms of the buyout or cannot find the assets (or cash) to buy your former spouse out, you probably won’t be able to put together a buyout. Should this occur, talking to a lawyer or a financial planner can help you figure out the best course of action.
What Alternatives To Home Buyouts Do You Have?
Let’s say that you’ve tried to do a buyout, but you don’t have the financing to score it, or you can’t agree to a buyout price. There are other options that you can choose to do. These include:
- You can choose to continue to co-own the house. This is a good choice if you are okay with co-parenting or need time to figure out what you want to do. Later on, you can both (amicably) decide what to do.
- You can also choose to sell the house and split the profits. If you have kids, they may take a move harder. However, this is an excellent way to ensure that both parties get their fair share.
- You can also agree to solo ownership. If you want to get the divorce pushed through, ceding the house is a good choice. However, this could be profoundly damaging to your personal finances, depending on your situation.
When you’re in the middle of a divorce, trying to divvy up your assets can pose a huge problem. This is especially true with the house you own together. If you’re currently trying to figure out how to work with your home during the asset split, you should look at what getting a buyout on your house can do.
Getting a buyout is a good way to minimize the amount of time you have to spent arguing over assets in court, and can also provide a safe way to ensure that your children will be able to live in their home post-divorce. Of course, you will need to make sure that you can actually agree upon a buyout and also get the funding for it.