When a couple marries, their property becomes known as marital property in most states. Marital property is property that is jointly owned by the couple. This means that each spouse has a 50% stake in the ownership of the property. Marital property can be a house, land, a car or even furniture.
When a couple files for divorce, this marital property must be divided. Some marital assets are easy to divide in a 50/50 manner, such as a joint bank account balance. However, other assets cannot be easily divided without destroying the value of the asset or causing undue hardship to the parties.
A house is one such piece of property. To respect the 50/50 ownership of the house, the parties would have to either continue to live in the house together or the parties would have to cut the house in half. Because neither of these situations is ideal, the courts have devised a way to address these types of assets.
Community Property v. Equitable Distribution
How property is divided is also based on whether you live in a state with community property laws, or equitable distribution laws. In a community property state, there is “community” property, shared between two spouses (mostly property accumulated during the marriage), and there is separate property (such as gifts and inheritances). Community property states include:
- New Mexico;
- Washington; and
Under equitable distribution, property may or may not be divided equally. Rather, it is divided equitably. A judge may decide how the property can be fairly divided.
What is a Buyout?
If the couple cannot agree on who can keep solo ownership of the house following divorce, the parties may be ordered by the court to undergo a buyout. This means that one spouse buys the 50% ownership interest of the other spouse in order to stay in the house.
If a buyout is not ordered by the court, the couple will need to negotiate and agree on a buyout. Buyouts are common when a couple has children. Often, it is easier and less stressful for the custodial parent to remain in the house and to raise the children there. This helps maintain a stable living environment for the children, who are undoubtedly going through a traumatic and difficult time during the transition of divorce.
Buyouts do not need to occur at the time of divorce. A buyout can occur after a divorce if the couple agrees to maintain joint ownership at the time of divorce. A buyout can also occur gradually. For instance, the buyer can slowly make payments akin to a monthly mortgage payment to the seller. The buyer can also give something to the seller in return for ownership of the house. For instance, the spouses may negotiate that one spouse gets the house while the other gets the boat and the beach condo.
How Do I Buy Out My Ex in a Divorce?
If you are interested in buying out your ex’s share in your house, you have several ways of doing so. Since most people do not have large sums of cash sitting around, you will likely need get a loan to buy your ex-spouse’s share. Banks can usually provide specialized buyout mortgages for this type of situation. The buyer can also apply to refinance the mortgage.
The first thing that you will need to do is determine the buyout amount. If you have $300,000 due on your mortgage but your house is worth $500,000, you and your spouse have a $100,000 equity each in the house.
This means you will need to give your spouse $100,000 to buyout their share unless they are willing to negotiate for a lower amount. You will therefore need to refinance your home to get a $400,000 mortgage. This includes the $300,000 to pay off the remaining mortgage balance and then the additional $100,000 share of your spouse.
It should be noted that, based on the marital property division laws in your state, and whether you have children, the house may be more likely to go to the spouse who has primary custody of the children.
Second, you should shop around at different banks. Credit unions may be able to offer more attractive interest rates. The interest rate can severely affect the amount that you pay. Make sure that your income will be able to afford an increased monthly mortgage payment.
Do I Need a Lawyer to Buyout My Ex in a Divorce?
If you are going through a divorce and are encountering difficulty with determining who should retain ownership of the house, a local divorce lawyer can help you evaluate your options, receive a fair share of the property and negotiate a buyout.