If you’ve ever bought a home before, you know it can be a stressful process. Offers, counteroffers, contingencies, appraisal, more counteroffers—it’s a lot of work. And that’s when you’re working with someone who wants to sell you their house.
When soon-to-be exes are navigating a divorce while trying to determine whether one will buy their family home from the other and on what terms, it can be even more complicated.
Often, our homes are interwoven with the fabric of how we see ourselves or our family, particularly if we’re part of a close-knit community, have carried out custom designs or renovations, or raised children in the home. It’s an emotional process and must be handled strategically with a clear sense of your goals and needs.
What is a divorce house buyout?
Divvying up assets and debts is a task that all divorcing couples must work through, from small items like book collections and kitchen tools to big ones like automobiles or retirement accounts.
The marital home can often be a couple’s most valuable asset, but it can also be one of the most complicated to divide.
While it’s common for a splitting couple to sell their house and divide the proceeds, it’s also common for one party (or both!) to feel strongly about staying in the house. In this situation, a divorce house buyout can occur, with one ex agreeing to purchase the other’s share of the equity in the home.
How does a divorce house buyout work in New Jersey?
In a community property state, marital assets are divided 50/50. But in an equitable distribution state like New Jersey, marital assets are divided fairly—not necessarily equally.
Traditionally, there are three options for the equitable distribution of a home:
- Selling the home, paying off the loan and any related tax obligations or liens, and dividing up the proceeds. This can be a straightforward option for couples, although it can involve additional expenses and timelines to consider for both parties.
- Both individuals keep the home and co-parent/live together while maintaining separate quarters. While it has gained popularity in times when the housing market provides definitive financial and logistical challenges, it is not ideal for couples who want to move forward with the least amount of continued connection as possible. This scenario has pros and cons that should be carefully considered from all angles.
- One party keeps the home and pays the other for their share of the equity.
The home buyout scenario refers to the third option above. Under divorce home buyouts, the buying party is responsible for covering closing costs and all future mortgage payments if the house isn’t paid off. Most of the time, this will require a refinance or, in rare cases, an assumption of the existing mortgage.
The selling party should verify that the loan is refinanced without their name. Even a court order codifying the terms of a Marital Settlement Agreement and finalizing the divorce won’t stop a bank from pursuing repayment on a mortgage if your name remains on the loan after a divorce.
How is your home valued during a divorce home buyout?
The first step for a home buyout is to determine the value of your home. There are several ways to do so.
Hire an appraiser
When people think about figuring out the value of their home, they usually have an appraisal in mind. An official appraisal is handled by a certified real estate appraiser who conducts a floor-to-ceiling, foundation-to-finishings assessment of your home.
Real estate appraisers look at:
- Size of property
- Location of home
- Age of home
- Number of bedrooms and bathrooms
- Square footage
- Curb appeal
- Major systems and home appliances
- Condition of home and systems
Appraisals aren’t free, but they do offer homeowners a higher degree of assurance as to the value of their property. They also are what the court will look at if your case ends up at trial.
Get a Comparative Market Appraisal
Another option is that your soon-to-be-ex can agree to use what’s known as a Comparative Market Appraisal (CMA). CMAs weigh factors like location, square footage, comparable home sales in the area, market trends, the condition of your home, updates, etc., to determine value.
The difference between a CMA is that these appraisals don’t need to be facilitated by a licensed appraiser. Real estate agents can conduct them, and may do them for free if they’re hoping to list your home. CMAs may also be faster to obtain than official appraisals.
If you and your spouse agree on the number from the initial CMA, there is no need for further negotiation on the issue. If you don’t agree, however, it may be necessary to obtain a second CMA.
Stipulate the value
If you and your spouse are on good (or at least agreeable) terms and you both can agree on the potential value of your marital home, you may be able to avoid getting a CMA. As long as you both can stipulate the value of your home, you may use that number as the starting point for buyout negotiations.
Keep in mind that for a home buyout to move forward, though, both parties must agree; if an agreement cannot be reached, the matter may go to court, and a judge could order the home to be sold.
How is equity calculated during a buyout?
Once your house is valued, you will determine your net equity. This is done by subtracting your remaining mortgage obligation, as well as any home equity loans or lines of credit from the appraised value, as well as any other liens or obligations held against the residence.
Generally speaking, the net equity is divided evenly between exes and the purchaser will refinance the home for the remainder of the mortgage plus the net equity they owe the seller.
However, other considerations can come into play. For example, equity amounts may differ if one party paid the entire down payment or funded a remodel. In those situations, they may claim a higher percentage of equity in the home.
You also may use the equity buyout as a source from which to leverage other debits and/or credits that may be owed to either of you for other items associated with your divorce.
There are numerous home buyout calculators available online that can provide a ballpark amount, but the figures they provide should be taken with a grain of salt. The best way to determine your buyout price is to work with qualified real estate professionals alongside your divorce attorney to establish price and terms that are suitable for your unique situation.
Negotiating with your ex in a home buyout
Negotiating real estate transactions can be stressful, and doing it with your former partner on the other side of the proverbial table is even more so. Working closely with your divorce attorney can ensure that you have a strategy grounded in your long-term goals for life after divorce.
Whether you wish to buy out your ex-spouse or vice versa, consider the following:
- If you have children, how will they be affected by selling versus keeping the marital home? Especially for younger children, continuity can benefit them during this time.
- What are your goals and priorities, and is there room to compromise? If your ex wants to buy the house and you want a larger share of retirement accounts, you may be able to craft an agreement that meets the needs of both sides.
- What do the professionals say? Working with appraisers, realtors, and financial advisors can provide valuable information to help you reach an agreement.
If a home buyout is on the table, it’s important to be proactive. By addressing even just the idea of it early on, you and your divorce attorney have more time to evaluate your options, consult with appropriate experts, and create an agreement that will appeal to your ex.
Consult a New Jersey divorce attorney
Buying or selling a house in a divorce can be a challenging process, one that has the potential to increase your stress levels during an already difficult time. The attorneys at Jacobs Berger seek to de-stress divorce for our clients by focusing on clear communication, personalized strategies, and realistic expectations so you can feel confident moving forward.
Contact our team to coordinate your strategy planning session today.