Deciding who gets the house after a divorce can be an emotional process. It can also be a stressful legal process.
If you live in a community property state, the judge will most likely “split” the house 50/50. In order to solely own the house, you will need to “buy out” your ex’s interest in the house.
How much do you need to pay? Let’s do a divorce home buyout calculation.
Before You Calculate a House Buyout
Get an Appraiser
Home values change over the years. Your home won’t have the same value as it did 5 or 10 years ago when you bought it (at least, you hope it won’t!) Before you start to calculate the home buyout, get an appraiser to determine the value of your house.
Some couples also call on home inspectors during this process. The state of the house (physically and the state of the title) will all contribute to the amount you need to pay your ex.
Know How Your State Splits Property
If one spouse bought the house before the marriage began, the other won’t be able to complete a house buyout. The spouse who owned the house will keep ownership of the house.
If both parties bought the house during the course of the marriage, they will need to see if their state is a community property state or equitable distribution state. Community property states split assets 50/50. Equitable distribution states will look at incomes, payments, work contributed to the marriage, etc. before they split the assets.
(Of course, if you and your ex mutually decide to split your house 50/50, then the rules of equitable distribution will not apply.)
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Divorce Home Buyout Calculation
Let’s say the appraiser determines that the value of your house is $200,000. You and your ex have already paid off $150,000 of the mortgage. That leaves both of you with $150,000 in equity. You live in a community property state that will split that equity in half; individually, each of you have $75,000. You will need $75,000 to buyout your ex’s share.
How do you get that money and get your ex off of the mortgage? It’s time to refinance.
If we stick with this scenario, you would refinance the mortgage for $125,000. The $125,000 comes from the $50,000 you have left to pay and the $75,000 you need to buyout your ex. After this refinance is approved, you take out $75,000 and give it to your ex. During the refinancing process, you can take their name off of the mortgage. You will also need to file a quitclaim deed to remove their name from the title.
Once all of this is complete, you are free! The house is 100% yours. Most likely, your refinancing will also give you a lower interest rate and more affordable payments each month!
Recruit the Help of Professionals
The example above is just that. Divorce house buyout calculations are not always as clean. Consult professional real estate agents, appraisers, inspectors, and financial advisors before you start to make a post-divorce budget.