Divorcing and Keeping the House
Divorcing and Keeping the House by Buying Out the Other Spouse
Almost every divorce involves a property settlement and there are several factors to consider when deciding to sell or refinance the primary residence. There are many reasons divorcing spouses agree on a buyout so one of them keeps the house, often living there with the children. The competitive North Texas real estate market in 2021 can be a challenge when divorcing and keeping the house by buying out your spouse.
Whether to sell the house and buy or build another is the issue facing couples getting divorced in 2021. The Dallas-Fort Worth area remains one hot market where buyers and sellers continue reporting record over-listing offers, an unprecedented volume of offers, and a relative shortage of homes available. The inventory is further limited by new home construction interrupted by massive spikes in construction costs due to the prices of building materials, affected by pandemic issues. So even though it might be appealing to sell the house, many people want to keep the house, so they do not have to buy a new home in a sellers’ market, and that makes sense.
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At the Barrows Firm in Southlake, we advise and represent our clients on preserving their best interests of the children and family moving forward into deciding to sell the marital property and buying new homes or staying in the house and buying out the other spouse. The Southlake and Northeast Tarrant County real estate market values are unique. Leslie Barrows and the Barrows Firm team are well-connected in the Southlake area and know the competitive and respected real estate professionals to help clients succeed in the face of challenges including buyouts.
Options for Buying Out the Other Spouse when Divorcing and Keeping the House
Divorce negotiations involving the marital home require an agreed or determined the fair market value of the marital home. The fair market value should be based on real-time values as if the house were going to be listed for sale. Local experienced real estate professionals can be retained to offer their professional advice on the fair market value of the family home if it were going to be listed for sale. Fair market value is in part based on the comparable sales of similar recent homes in the area. The spouses can agree on retaining realtors to determine fair market value and once that is agreed on in the process of divorce financial calculations, the buyout options can be explored.
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Mortgage refinancing is the way process by which people who want to keep the house can renegotiate their mortgage without their spouse on the loan or title. Refinancing the mortgage is a way to raise the money to compensate the other spouse for their equity in the home. If there is equity in the home, the refinance process is like pulling cash from the equity to settle with and compensate the other party.
Because the underwriting process can be extensive, it is important to know how much the borrowing party is approved before negotiating what can be done about buyouts. It is a good idea to talk to several lenders because some may focus their business on divorce refinance buyouts and know competitive tips for securing financing approval.
Which Spouse Can Best Buy the Other Out?
If the divorce financial negotiations indicate the equity in the home is to be split equally into 50/50 shares, the spouse who wants to keep the house and not sell must make the offer to pay the other spouse their share of the equity. If the fair market value of the house is $800,000 and the amount owed on the mortgage is $400,000 then each spouse is awarded $200,000 of the equity. That means the spouse who wants to buy out the other spouse on the home, needs to come up with cash or the equivalent value of that money. Refinancing the mortgage at $600,000 is one way to come up with the money to buy out the other spouse and keep the house.
The borrowing ability of the spouse looking to refinance is a key issue in whether that works as an option. And when negotiating the divorce and buyout options, the spouses can talk to lending professionals and determine pre-approval amounts and the other details of the refinancing process. If the spouse looking to stay in the house is having trouble qualifying to refinance and buy the other out, there may be other options in satisfying the equitable split of the home equity.
Alternatives to Cash Buyouts When One Spouse Wants to Keep the House
Waiving the right to receive equitable shares of other marital assets can be part of negotiating a buyout of the other spouse’s interest in the home. For example, at the date of divorce, the party who wants to stay in the house may be awarded a share of vested retirement accounts and other assets including vehicles, boats, and other land and property. Waiving the rights and interests in these other-awarded marital assets can be the basis for a buyout.
In divorces where one spouse is awarded spousal maintenance and they want to assume responsibility for the marital residence and buy out the other, the amount of spousal maintenance due could be used to offset the buyout amount to the former spouse. Be aware that some payments ordered in family court cannot be negotiated outside of their regular purpose, such as child support payments.
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