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.
A divorce house buyout is the act of one spouse deciding to buy the other spouse out of a house they jointly owned 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.
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 For A Buyout?
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.
To calculate how much it will cost to buy someone out of a house, you'll first need to start by determining their equity. You'll start by getting an appraisal to determine the value of the home, and then you'll calculate how much equity your spouse has.
1. Get the House Appraised
The first step to buying a spouse out of a house will be to get an appraisal so that you can determine the value of the house. It's important that you choose the appraiser together so that you won't have any issues if the appraisal comes out lower or higher than expected.
2. Determine What You Owe On the House
After getting the home appraised, you'll want to contact your mortgage lender to determine how much you still owe on the home. Once your lender confirms what you still owe, you'll be able to calculate your total equity by subtracting your mortgage obligation from the appraised value.
3. Decide How To Split Furniture and Household Possessions
Another important thing to consider in a house buyout is the value of the appliances, furniture, and other household possessions. You'll need to decide if you plan on splitting them equally, with each party taking half, or if one spouse wants to buy them all out from the other. If you decide on the latter, you'll need to set a value on everything.
4. Calculate the Divorce House Buyout
To calculate the equity each spouse has in the house you'll use the following formula:
Net Equity = (Appraised Value - Mortgage Obligation) / 2.
You start by taking your appraised value, from which you'll subtract your mortgage obligation to get your total equity. You'll then split that in two to get the net equity for each spouse. If you're not splitting furniture equally, you'll factor the value of that in at the end.
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.
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.
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.
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.
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. This is the easiest way to determine who gets the house without having to go to court while keeping both parties happy.
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.