For many divorcing couples, the marital home is their major asset. In some cases, the house is put on the market and sold as part of the divorce settlement, but for many couples, especially those with children, one spouse may decide to buy out the other's share and retain the family residence.
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Figuring Out the Equity
The house's market value is important, but unless there is no mortgage on the property, that is not solely how the property's value is calculated for a buyout. First, you must calculate how much equity there is in the home. For example, if your house is worth $500,000, but your mortgage is $250,000, both spouses have $125,000 of equity in the dwelling.
Contact an Appraiser
You'll need a certified appraiser to determine the current fair market value of the home. The valuation will form the basis of the divorce house buyout price. It's best to have the buy-in of both parties in choosing an appraiser.
It will cost more money to have each spouse choose and send in an appraiser, but sometimes that's necessary to reach a deal. If the two appraisers value the house at a similar amount, that's one thing, but if one appraisal comes in much higher than the other, you may have to engage a third appraiser for another valuation.
The appraiser uses recent "comps," or comparable sales, as well as the house's condition and any special amenities to determine fair market value. Once that value is determined, the divorcing couple can figure out how much each half is worth with mortgage considerations taken into account. Depending on location, any real estate commission involved in selling the home is subtracted from the property's net value, even if the spouse buying out the other does not intend to sell it in the near future.
Hire a Home Inspector
In addition to an appraiser, the person buying the property should hire a home inspector and have them check for termite damage, HVAC and plumbing problems and other issues that may affect the value of the home. If major work is needed, the divorcing couple, or their attorneys, must decide who is paying for what, or if the cost of the repairs is deducted from the buyer's share of the divorce home buyout calculation.
Refinancing the Home
Unless the spouse buying the house has enough money to pay cash, he or she will need to refinance the home. That might mean you will end up paying more than your current mortgage.
Keep in mind that the new mortgage is based only on your income, credit score and existing debt. However, if you are receiving alimony payments, that may help you qualify, as long as these payments are long-term rather than just for a few years.
Consider also: Mortgages & Taxes: What You Need to Know
Alternatives to Refinance
If there are other substantial marital assets, the spouse buying the home may not to have to refinance. Instead, they may agree to give up their right to other assets in return for the spouse's half of the house.
Say one spouse has a high-priced boat that is her pride and joy. Rather than sell the boat and divide the funds received for it, the boat aficionado may agree to swap her half of the house for the spouse's half of the boat. Usually, the marital assets used in such a trade-off may include cash, stocks or bonds.
Removing Your Spouse From the Title
There are a number of ways to remove the ex-spouse's name from the title of the home. This is necessary even if it is only your name on the mortgage. Perhaps the easiest way is via a quit-claim deed, but your attorney can advise you of the best legal way to have your ex's name removed in your situation.