It’s a common dilemma among divorcing couples: someone always wants to keep the house. But the question is: Who reasonably can afford to take it on? When your purchasing power gets cut in half, that can present some serious challenges.
Trouble is, you’ve got blinders over your emotional ties to the home and its sentimental value. Instead, you should be looking at a number of practical factors that play into this decision: your state laws on property division and your personal finances, to start—or you could end up with no savings and a mortgage that’s too heavy to carry alone.
Before you spend all your leverage negotiating for sole ownership of your home, use this step by step guide to find out if it’s the right move for you, and how to set the process in motion if you think you can realistically make it work.
How to Keep the House in a Divorce: Take it Step by Step
You’re hell-bent on keeping the house and want to get the ball rolling—here’s how to figure out if it’s a financially viable option (considering you’ll have to buy your spouse out of their share), negotiate the home’s value, and officially remove your spouse’s name from the deed.
Step 1: Check your finances
Getting the house and keeping the house are two very different things. Just because your ex is willing to let you have it doesn’t mean you can afford to keep it.
“When one spouse is attempting to keep the house, it’s important to remember that you can’t qualify for as much as a single person,” advises Dawn Fore, a top Texas agent and divorce specialist who’s sold over 72% more properties in Houston than the average agent.
“When we look at the numbers, we have to go through what the household costs are every month and then look at what the real estate market is doing to see if it’s more affordable to stay put or sell.”
The last thing you want is to fight tooth and nail to get the house—sacrificing rights to a lot of other assets along the way—only to find out you can’t financially afford it on your own.
If you still have a mortgage on the property, you’ll have to prove to your lender that you’re financially stable enough to afford the monthly mortgage payment, home maintenance costs, property taxes, and other home-related expenses.
Even if your ex agrees, the lender approves, and your personal budget can cover the monthly expenses—that still doesn’t mean keeping the house is the wisest financial move. You have to evaluate the long-term consequences of keeping a house originally purchased with a partner.
It may seem like a sweet deal to get your expensive home as part of the divorce settlement. However, the capital gains tax you’ll need to pay when you eventually sell the property may eat up a giant portion of the equity you negotiated for.
For example, let’s say you could sell your house before or during the divorce for a profit of $250,000 each—a total of $500,000. Since you’re still technically married at the time of the home sale, that entire $500,000 is exempt from the capital gains tax, assuming you’ve both lived in the house as your primary residence for at least two years.
However, if you negotiate to keep the house, and then sell it for a profit of $500,000 as a single homeowner, you’re only allowed to exclude $250,000—so you’ll have to pay capital gains on the other $250,000.
Step 2: The offset vs. refinance decision
So you’ve done the math, considered the long-term consequences, and decided that keeping the house is the right decision. Your next step is to figure out the best way to pay for it.
The simplest option is offsetting your ex’s half of the existing equity by giving up your claim on other marital assets of equal value, such as retirement accounts or vacation homes. You may also be able to negotiate other concessions, such as a reduction in alimony.
However, negotiating ownership of the house as an offset during the divorce settlement doesn’t remove your spouse from the mortgage or the deed.
If you’ve still got a mortgage on the house, refinancing is typically necessary simply to remove your spouse from the loan if for no other reason. Unfortunately, unless you have a pile of cash sitting around, you’ll likely need to refinance simply to pay your spouse for their half of the existing equity.
Just keep in mind that you’ll be refinancing for the existing loan amount PLUS half of the existing equity—and you’ll need to qualify for that larger loan amount on your income alone, which may not be feasible.
Lenders aren’t eager to refinance home loans for more than 80% of the home’s current value. If the combined debt and equity push you above that threshold, you may not qualify for the mortgage on your own.
For example, let’s say your home is currently valued at $600,000, and your existing mortgage debt totals $400,000—that gives you $200,000 in existing equity. Your ex is entitled to half of that, or $100,000.
You’d need to refinance for a $500,000 mortgage in order to buy out your ex—but your lender is only willing to refinance 80% of the current value, which is $480,000.
In this scenario, you’d either need to come up with an extra $20,000, get your ex to agree to take $20,000 less for their share of the equity, or negotiate an offset worth $20,000. If not, you’re not going to be able to refinance the house.
But if you do negotiate a way to keep the house, don’t forget: whether you negotiate an offset or refinance the mortgage, you must also remove your ex from the deed.
Step 3: Negotiate the home value
“How much is your home worth?” That simple question isn’t easily answered—especially during a divorce.
The first place most sellers turn to find out the current market value is to their real estate agent, to get a comparative market analysis (CMA).
However, even if you live in a cookie-cutter home with a layout identical to others in your neighborhood, yours is on a different lot and has different upgrades. So, while your home’s unique value may be similar to recent home sales, the local comps can’t be counted on to give you a definitive valuation.
Plus, real estate markets are known to fluctuate, and divorce is a notoriously lengthy process—especially in states that require a separation or “cooling off” period. This means your home’s value is probably going to change between when you get the CMA and when the buyout finally goes through.
“When you’re trying to figure out how much to buy your spouse out for, you need to remember that the preliminary market analysis you get from an agent isn’t the final number for your home’s actual value,” explains Fore.
“I’ve seen home values change in just a matter of months based simply on the time of year. For example, let’s say we provided the home value in the fall, but the divorce and the home buyout didn’t go through until the spring, which is when we see home values increasing.”
Unfortunately, CMAs are typically geared toward selling the home for the most money possible—which is not the kind of valuation you’re looking for when you’re looking to buy out your soon-to-be-ex.
During a buyout, you’re the buyer, looking to save money by negotiating the lowest value possible. But your ex is in the seller position, determined to set the highest possible value so they’ll get more cash for their half of the equity.
So, how do you determine your home’s worth?
If your lender requires a new appraisal as part of the refinance, that can give you a starting value to begin negotiations. If you disagree with the bank’s appraisal, you could pay $300 to $500 for a second appraisal.
A CMA from your real estate agent can also help you negotiate a lower valuation, if some of the comps sold for a lower amount than the appraisals. You can also point to deferred maintenance to reduce the valuation, such as the 20-year-old roof, or the outdated H-VAC.
Of course, agreeing on a home value is going to be contentious—especially when the desired end result is that the spouse giving up the house will get less money than they might by selling the house to an outside buyer.
Would it make more sense to sell the house and move on?
If you’re determined to keep the house, you’re probably willing to sacrifice a lot to get it. Maybe that means turning down the alimony you’re entitled to, giving your ex both cars, or signing away your rights to the retirement accounts.
Unfortunately, even though the house is likely your most valuable shared asset, keeping it is not always the wisest move.
So, if keeping the house will max out your sole owner budget, it’s better to sell and use the proceeds to buy a more affordable, memory-free home.
Step 1: Hire a divorce specialist agent (that both spouses trust)
Selling the house and splitting the proceeds during a divorce is the less-complex option, but it probably won’t be disagreement-free.
While it’s best to remember that the home sale is a business arrangement that will benefit you both in the end, it’s not always easy to leave emotions out of the process.
Selling a home requires a lot of hard work, decision-making, and occasionally money if any repairs or upgrades are needed. If you don’t want to waste endless hours bickering over who is going to do, decide, or pay for it all, you need to enlist some expert help.
Hiring an experienced agent who’s also a real estate divorce specialist provides you with a go-between who knows how to handle the contentious communication that so often accompanies a divorce home sale.
Not only should you hire a divorce specialist, you should find one that both you and your spouse can trust—or your home sale will become a war with no winners.
So how do you settle on one agent without the selection process becoming a battle itself? Both spouses simply need to separately interview several agents and rank them according to preference. Then give both lists to your divorce attorney, who will select the agent ranked highest by both spouses.
Step 2: Negotiate the home value
Even when you’re selling the house, you’ll have to negotiate with your spouse on an appropriate list price—and the lowest offer you’re both willing to accept.
However, since it’s in the best interest for both of you to sell at the highest value, there will be less to fight over.
There may still be some disagreements.
For example, if your ex hates your design choices in the recently remodeled kitchen, you’ll probably argue over how much value the upgrades actually add to the home.
Or maybe you want to invest a little time and money into fixing the place up so you can sell for a higher price, but your ex insists on selling the house as-is.
Luckily, your divorce specialist agent will be able to smooth any ruffled feathers using clear-cut criteria to determine how best to prep the home for sale and how to set the right list price—while still selling the property as quickly as possible.
Step 3: List, sell, and settle
Prepping the property and setting the list price may seem like the most difficult part of the process, but some of the most bitter battles often come after the house is listed for sale.
For starters, there’s the stress of keeping the home clean and staged until an offer is accepted—not to mention the chaos of arranging both of your schedules around those showings.
The tensions that arise during this time is why it’s often best if there’s only one spouse still living in the house while it’s on the market.
Once you’ve got buyers in the door and interested, you’ve then got to agree on which offer to pick.
If your spouse is more interested in moving on than making money on the home sale, they may insist on accepting the first offer that comes along—even if it’s a lowball bid. With the assistance of a divorce specialist agent you’ll be able to hammer out if it’s more cost effective to accept or wait for a better buyer.
After you’ve accepted an offer, there’s still escrow to get through. Your buyer might start asking for concessions, credits or additional repairs—especially once they realize that one or both of you are desperate for a quick close due to the divorce.
When the home is finally sold, all that’s left is dividing up the proceeds—after the mortgage is paid off, of course.
The property division laws in your state will play a role in how the proceeds are split–however that cash from the equity can give you some leverage to negotiate with. If the home sale is completed while you’re still negotiating assets, you can barter away your claim on physical assets for a larger chunk of the proceeds.
For example, if your ex wants sole ownership of the family boat, you can ask to be paid in home sale proceeds for your half of that asset.
Keep or sell? Let the numbers tell you what to do
The sense of loss is so overwhelming during a divorce, it’s only natural to want to hang on to everything else—including your home. However, keeping your house isn’t always the smartest decision for both your emotional or financial health.
Don’t let your feelings rule your decision-making during this tumultuous time, or it’ll cost you. Instead, consult your attorney and your divorce specialist agent to get a clear picture on whether or not it’s in your best interest to hang on to or sell your home.
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