When splitting assets with your spouse, the state of the marital home typically becomes a hot-button topic. It can be tough to decide what to do with a home you’ve spent time and money renovating and paying off. Add to this the countless memories you’ve made there with your children. Due to financial and emotional investment, one of you may not want to part ways with it. If so, you may want to negotiate a buyout.
What Is a Buyout?
A buyout occurs when one spouse purchases the other’s financial interest in the family home. For example, if you and your ex paid off the mortgage and there is $200,000 equity in your home, the buying spouse must pay half of this share, equaling $100,000. If you have a mortgage loan with an existing balance, you’ll need to factor that in, too. For instance, if you have a $200,000 balance and $75,000 equity in the house, you’ll need $237,500 to pay off the mortgage and buy out your ex’s half ($37,500) of the equity. The ownership would then transfer to the sole spouse.
How to Determine Who Should Buy Who Out
A buyout must be negotiated and mutually agreed upon by both spouses. It cannot be forced on a couple by the courts. Generally, the custodial spouse will buy out the home from the other to provide stability and continuity for the children. However, they must be prepared to undertake the financial burden. The purchasing spouse can pay for the buyout either with cash, by refinancing the mortgage, or trading other assets such as retirement funds, pensions, or alimony worth the amount of the selling spouse’s share.
Typically, it’s unlikely one spouse will have enough cash on hand to complete the transaction, so the other methods are employed. If trading assets, the couple will need to negotiate. Perhaps the buying spouse asks for less or no alimony in exchange for the home altogether. Or the buying spouse gives up a vacation property to keep the family home. When the purchasing spouse decides to refinance the mortgage, it’s crucial they meet the necessary requirements. To qualify for the loan, they must be able to verify their income and have good credit to get the best rate available.
If the spouse looking to purchase the home cannot afford it at the time, the buyout process can occur gradually. Until the home is fully bought out, the couple will co-own it. Your divorce agreement will need to outline the dates by which the interest and additional home-related expenses such as repairs or taxes will be paid.
A buyout comes with risks for both the buying and selling spouses, so each must determine whether it’s worth doing. The selling spouse loses out on potential future appreciation, while the purchaser risks the possibility of depreciation. It can also be a financial stretch for the buying spouse, as they’re expected to pay for the mortgage, half the equity, closing costs, and broker’s fees (if necessary). If you agree the home’s equity can be paid over time, there are additional liabilities. While co-owning the home, the seller could be responsible for mortgage payments or property taxes if the buyer is delinquent.
How to Determine the Value of the Home
The value of the home is determined similar to a home sale where a divorce isn’t involved. A professional appraiser will inspect it and provide an estimate of its fair market value based on several factors, including condition and comparables in the area. The cost of an appraisal and accompanying report can range from $300 to $500. In rare instances, where neither spouse agrees on the appraised value, a judge may be asked to decide it. In such cases, the judge will typically provide a number similar to the appraised value. If two appraisals with differing values were attained, the judge may average them out.
4 Tips to Consider
When negotiating a buyout with your soon-to-be ex, it’s important to remember these four tips. For more information on splitting assets, check out our blog “Advice for Parting Ways & Dividing Assets.”
1. Enlist a Professional
Whether your divorce is civil or contentious, it’s best to enlist a team of professionals to ensure a seamless dissolution. A legal expert can assist throughout the negotiation process, guaranteeing each spouse is content, while a financial professional has the ability to provide short- and long-term financial analyses and loan advice. When negotiating a buyout or selling the home, a real estate expert can be crucial to ensure the sale is accurate and efficient.
DivorceForce has developed a network of these divorce experts and compiled their contact information into an easy-to-use resource called DivorceForcePro. Just enter the type of expert you need and your location to find divorce professionals in your area!
Although reading this blog is a great start, it’s imperative you conduct research about the buyout process and mortgage refinancing before you begin negotiations. Meet with a professional to analyze your financial situation. This will determine whether or not you can purchase the marital home from your ex, or if it will have a detrimental effect on your financial future.
3. Keep Things Civil
No matter the state of your relationship—even if it’s volatile and toxic—you must remain civil and level-headed. Attempt to work with your ex to develop a settlement that is beneficial and equitable for both of you. If conversations become heated, stop the discussion, walk away, and come back later. It’s especially important that you have a lawyer or a mediator to speak on your behalf if the situation becomes abusive.
4. Ask Questions
Ensure you ask questions throughout the entire negotiating process, so you get the best deal possible—whether you’re the buying or selling spouse.
Several you may want to ask include:
- Should I give up my alimony in exchange for buying out the marital home?
- If I agree to my spouse’s home buyout, will it ruin my credit? And how do I protect myself?
- What should I do if I want to keep the marital home, but can’t afford to buy out my spouse? What are my other options?
- What are the alternatives to a buyout when splitting a marital home?
For more information about negotiating a buyout, contact a specialist on DivorceForcePRO today.