The family home typically represents the largest shared asset in divorce proceedings and one of the most complex to resolve.
While keeping the home can provide stability, buying out your ex’s share of the house and converting joint ownership to sole ownership involves specific financial and legal challenges that standard mortgage transactions don't address.
What seems straightforward—"I'll keep the house and buy you out"—involves careful property valuation, specialized mortgage qualification, and precise legal documentation. Without proper guidance, unfavorable loan terms or continued financial entanglement often result.
At Contour Mortgage, we've guided clients through home equity buyouts since 1993. This guide outlines proven strategies for successfully navigating a house buyout during divorce, from accurate property valuation to specialized financing options and critical legal considerations.
The foundation of any successful buyout starts with knowing exactly what the house is worth.
Divorce negotiations based on outdated or inaccurate valuations can lead to significant financial inequities and complicated legal challenges later.
A professional appraisal objectively assesses your home's current market value. While the cost typically ranges from $300-$600, this investment prevents potentially costly disputes about the property's worth.
Both parties should agree on the appraiser to ensure the valuation is considered fair. In contentious situations, some couples opt for multiple appraisals and average the results, or request that the court appoint an independent appraiser.
Understanding this calculation is crucial if you plan to buy out your ex’s share of the home, since the equity value determines how much you’ll need to pay or finance:
Total Equity = Current Home Value - Outstanding Mortgage Balance - Liens
For example, if your home appraises for $400,000 and you owe $250,000 on the mortgage with no other liens, your total equity is $150,000.
However, this simple calculation can get complicated by factors such as:
When these factors come into play, documenting the timeline and source of funds becomes crucial to establishing an equitable division.
How equity gets divided depends largely on whether you live in a community property state or an equitable distribution state.
Community Property States: In states such as California, Texas, and Washington, marital property is typically split 50/50, meaning each spouse is entitled to half the equity accumulated during the marriage. However, portions of the equity may be considered separate property if one spouse owned the home before marriage or used inheritance funds for the down payment.
Equitable Distribution States: In the majority of states, courts divide marital property "equitably" but not necessarily equally. Factors considered include the length of the marriage, each spouse's financial situation, contributions to the home, and childcare responsibilities.
A cash-out refinance allows you to take out a new mortgage larger than your current loan balance, using the difference to pay your ex-spouse their share of the equity.
How it works: If your home is worth $400,000 with a remaining mortgage of $250,000, and you need to buy out your ex-spouse's $75,000 equity share, you would refinance for $325,000. This pays off the original $250,000 mortgage and provides $75,000 cash for the buyout.
Limitations:
This lesser-known option can provide significant advantages than a standard cash-out refinance if your divorce decree is properly structured.
Key benefits:
To qualify, your divorce settlement must explicitly state the equity buyout amount in the property section of the agreement. Without this specific language, lenders will classify the refinance as a cash-out, resulting in less favorable terms.
When refinancing the primary mortgage isn't ideal—perhaps due to an existing low interest rate—a second mortgage can provide buyout funds while preserving your original loan.
HELOCs allow homeowners to access equity without changing their primary mortgage's term or rate, which can be especially valuable when your existing mortgage has favorable terms. This approach preserves your primary mortgage while providing access to significantly more equity than many conventional loan options.
When traditional financing options aren't feasible, creative alternatives can bridge the gap:
Deferred Buyout: The departing spouse maintains partial ownership until specific conditions are met, such as children graduating from high school or the home reaching a certain value. This arrangement requires careful legal structuring to protect both parties.
Payment Plan: The residing spouse makes installment payments directly to the ex-spouse over time. Without lender involvement, terms can be more flexible, but should be formally documented in the divorce agreement with consequences for non-payment.
Asset Trading: Rather than cash, other marital assets of equivalent value (retirement accounts, investments, etc.) can be exchanged for home equity. This approach requires careful valuation of all assets and consideration of tax implications.
The language in your divorce decree directly impacts your refinancing options and costs. Working with attorneys and mortgage professionals who understand these nuances can save thousands in interest and fees.
Key elements that should be explicitly addressed in the decree include:
For example, instead of stating "Spouse A will refinance and buy out Spouse B's interest in the marital home," the decree should specify: "Spouse A will refinance the marital home located at [address] and pay Spouse B $75,000 representing their equity share, to be completed within 90 days of the final divorce decree."
Removing an ex-spouse from the property title involves specific legal documents that vary by state:
The deed must be properly executed, notarized, and recorded with the county recorder's office to be legally valid. Recording fees typically range from $25-$100 depending on location.
While a deed transfers ownership, it doesn't affect mortgage responsibility. Lenders are not bound by divorce decrees—both parties remain liable for the loan until it's refinanced or formally assumed.
Refinancing is the most common and complete solution, creating an entirely new loan under only one spouse's name.
Mortgage Assumption is rare but possible with some loan types:
Meeting mortgage qualification requirements on a single income presents one of the biggest challenges in divorce buyouts.
Divorce often negatively affects credit scores through:
In some states, particularly Texas, special provisions called "owelty liens" can help divorcing homeowners access more equity than standard refinancing allows.
An owelty lien:
While most prevalent in Texas due to state-specific homestead protection laws, similar provisions exist in other states under different terminology. Consulting with a mortgage professional familiar with divorce lending is crucial to identifying these options.
A house buyout in divorce represents a significant financial transaction with long-term implications. Making an informed decision requires balancing emotional attachment against practical financial realities.
Consider these key questions:
Whatever you decide, working with experienced professionals—from divorce attorneys who understand mortgage implications to lending specialists familiar with equity buyouts—can mean the difference between a successful transition and years of financial stress.
At Contour Mortgage, we’ve helped thousands of clients navigate divorce-related home buyouts with clarity, confidence, and care. Whether you're exploring your options or ready to move forward, we're here to help you protect what matters most.
Take the next step: Connect with a mortgage specialist and find out what’s possible.