Three Ways to Split the House in Divorce

By
Education & Training with Real Estate Divorce Specialist Association

Three Ways to Split the House in Divorce
By Carol Ann Wilson, CFP, CFDP

1. Sell the house and divide the profits that remain after sales costs and the mortgage is paid off. It is important to consider the basis in the house and possible capital gains. Also, if your client wants to buy another home, determine if he/she will be able to qualify for a new loan

2. One spouse buys out the other spouse's interest in the house. This can be done by trading another asset for the interest in the house.

The first step is to determine the value of the home. An appraisal should be done. The fair market value of the house minus the mortgage will show the equity in the house.

What if the wife decides to keep the house and she finds within a short time that she cannot afford to keep it and she puts it up for sale? Should you consider subtracting selling costs and capital gains taxes from the value in the beginning? These are issues that definitely should be considered.

What if the wife wants to keep the house and there is not another asset to offset the value? She could refinance the house to withdraw enough cash to pay off her ex-husband. But that means she now has a higher mortgage payment. Can she afford a higher payment?

Instead of refinancing the house, she could owe a sum to her ex-husband, which is paid off over time (a property settlement note). A note should include reasonable interest, and it should be collateralized with a deed of trust on the property. A problem with this arrangement is that it keeps the ex-spouses in an uncomfortable debtor-creditor relationship.

Another problem with buying out the other spouse's interest is that the non-owner spouse's name stays on the mortgage. Even though the husband may quit-claim the deed to the wife, his name remains on the mortgage. If she decides to stop making the payments, he is still liable. This may impact his credit.

3. One spouse keeps the house for a certain time period, say until the children are out of school, and then the house is to be sold and the proceeds divided. This creates a tie between the ex-spouses that they may not want. But is does allow for the "out-spouse" to be able to also take a $250,000 exclusion from capital gain.

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Jason Kardos 07/03/2009 07:33 AM
  2. Shannon Coe 04/18/2013 01:36 AM
Topic:
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Groups:
Divorce and Real Estate
Real Estate Divorce Specialists
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Rainer
45,406
Ed Powers
Ed Powers Real Estate - Fort Collins, CO
Real Estate, Fort Collins CO Homes For Sale

Interesting. Curious about what happens to the spouse that gives up the house to the in-house spouse. Does the out-house spouse qualify to get a loan on another house when there is an outstanding loan that the in-house spouse hopefully continues to pay on? Seems that the out-house spouse would be debt burdened and unable to get financing until the in-house spouse either refinances or sells the house. Your thoughts on turning the out-house spouse into a potential buyer would be appreciated.

Jul 10, 2009 09:01 AM #1
Anonymous
SUELY

DEAR DR. CAROL ANN,

PLEASE CAN YOU HELP ME AND SEE  WHICH FORM OF LAW IS ALSO APPLICABLE IN HOUSTON /TEXAS.

HERE THEY SAID I HAVE THE RIGHT ONLY  50% OF THE DOWN PAYMENT  (US30,000) AND THE TOTAL AMOUNT HE IS PAYING MONTHLY (US700.). WE WERE MARRIED FOR 5 YEARS AND HE BOUGHT THE HOUSE AFTER THE MARRIAGE WITH M/ NAME ON THE DEED.

I HOPE YOU CAN HELP ME  AND COULD UNDERSTAND MY ENGLISH. I AM FROM BRAZIL.

BEST REGARDS,

SUELY MACHADO

 

 

Sep 18, 2009 02:49 AM #2
Anonymous
Alisa

Dear DR. Carol Ann,

Please help me to understand about splitting house equity when we divorce. We live in WA state. We bought a house together when we just married. Now, my husband wanted to divorce and he wanted to keep the house and I agreed. But when he comes up with the calculation how to divide equity if he keeps the house, I think it is not right and fair.

when we had apprasal value, he said he would lower that value at least $15,000 (b/c he says if we sell the house the buyer will buy it with lower apprasal value). From there he will minus $30,000  that he borrowed from his mom to make downpayment when we bought the house. Then whatever left over, he will split 50/50. is he right? please help me on this asap, because he pushed me everyday to agree then he could process the legal paper with his lawyer.

Thank you so much for your help

Alisa

 

Feb 19, 2010 05:01 AM #3
Rainmaker
526,160
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Very clear explanation of the 3 choices.

Of course, it gets complicated when the amount of the mortgage exceeds the value of the house.

Jun 27, 2011 05:40 AM #4
Rainmaker
1,506,571
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

We all noticed that recently the divorce rate rose( thanks to Depression years), but many couples did not sell their houses during the divorce process since prices were down; finally,  those houses are entering the market.

 

Oct 19, 2013 05:12 PM #5
Ambassador
2,470,082
Fred Griffin Tallahassee Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

We invite you back to ActiveRain in the year 2017!

Feb 24, 2017 08:09 PM #6
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Rainer
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Carol Ann Wilson

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