This simple and effective calculator can help you calculate the buyout amount for your house in a divorce.
House Buyout Divorce Calculator
House Buyout Calculator
One of the biggest decisions that needs to be made during the divorce settlement process is what to do with the house.
Potential solutions for dividing equity in the house include a divorce house buyout, an outright property sale, or even a deferred property sale.
Since the house usually represents a large portion of a couple’s net worth, it’s important to seek good advice when assessing your options.
Engaging with a knowledgeable real estate agent or a savvy divorce attorney can be a huge help in the decision-making process.
Regardless of the route you choose, it’s important to know how to calculate your home’s equity as a necessary first step.
What is Home Equity?
Simply put, house equity is the difference between the value of your home, and the amount of outstanding mortgage loans or liens you have borrowed against it.
For example, if your home is worth $750,000, and you have an outstanding mortgage balance (or balances) totaling $250,000, then total equity in the house is equal to $500,000.
The higher the appraised value, the more equity you are considered to have. This equity will be split during the divorce settlement process.
Equity = Appraised Value – Balance of Mortgages/Liens
How much equity belongs to my former spouse?
The amount of equity that belongs to either spouse depends on whether you live in a Community Property or Equitable Distribution state.
Community Property (aka 50/50) – This assumes that all assets accumulated over the course of your marriage are to be split 50/50. There are some exceptions to this rule (such as separate property contributions) which a divorce attorney or mediator can help you assess. Otherwise, the guideline requires that you split the equity equally.
Equitable Distribution – This is a process which enables a couple to split equity as they mutually agree. If the two parties can’t reach a mutual agreement on their own, a Judge will often determine the outcome of the case based on a variety of factors.
How do we determine the value of our home?
The best place to start is by obtaining a home appraisal through a licensed real estate appraiser.
A full home appraisal will consider the current state of the housing market and compare your home to the most recent and relevant comparable sales in your area.
Online value estimates such as the ones provided by Zillow and Redfin are worth checking but are not accurate enough for truly calculating home equity.
How do I buyout my husband or wife from the house?
Once you know how much equity belongs to your spouse, then you know the total cost to purchase the selling spouse’s interest in the home.
As the buying spouse, there are a few common ways to purchase the selling spouse’s share:
Lump sum cash transfer
If you have the community funds available to buyout your spouse in-full, congrats!
When the time comes, you can transfer the amount due to your ex-spouse or offset the obligation through other assets that may have been due to you as part of the overall settlement agreement (for example, forfeiting your share of your spouse’s retirement account in exchange for a smaller cash transfer).
Then, in exchange for receipt of these funds, your former spouse will sign an Interspousal Transfer Deed, or Grant Deed, to be filed with the County Recorder’s Office. Once this deed has been recorded, you will become the only owner of record.
It’s important to remember that buying spouse funds are transferred to the selling spouse in exchange for sole title to the home.
Sole title can be achieved once an Interspousal or Grant Deed is signed and filed with the local County Recorder.
Most couples don’t have the cash necessary to purchase their spouse’s share of equity and complete a house buyout. Therefore, they look to mortgage lenders for a financing solution.
A cash out refinance involves qualifying for a new mortgage large enough to:
- Payoff the existing mortgage balance, and
- Access liquid equity from the house for buyout purposes
The end result is one new mortgage in the name of the buying spouse only. The refinance closing should also involve the signing, filing, and recording of your Interspousal or Grant Deed, which effectively transfers sole ownership to the buyer.
Buyout installments with payments made over time
In some cases, a selling spouse will accept their buyout funds over a period of time, such as with installment payments.
The buyout is not considered complete until the entirety of the buyout funds has exchanged hands.
The Interspousal Deed or Grant Deed would also be filed at the conclusion of this installment process.
Sell the house and split the net proceeds
In the event that a house buyout is not feasible or desirable by either party, it is time to list the property for sale. The amount of equity to split will depend on the final sale price.
However, there are a few additional expenses that will be deducted from the net proceeds in a open-market sale, such as:
- Real estate agent commissions – These can range from 5-6% of the sale price
- Seller closing costs – This can include transfer taxes, escrow & title fees, etc. The buyer will be responsible for their own set of closing costs.
- Capital gains taxes – These are Federal and State taxes paid on any realized gain from the sale of the house, minus any exemptions or deductions.
What Is the Role of Interspousal or Grant Deeds During the House Buyout Process?
A Deed of Trust is a written legal document used to demonstrate home ownership.
An Interspousal Grant Deed is the instrument used to transfer ownership between the seller (the grantor) and the buyer (the grantee).
For an Interspousal Deed to take effect it will need to be signed, notarized, and filed with the local County Recorder’s Office.
Typically, these deed’s are filed and recorded only upon completion of the buyout or purchase process.
Is a Divorce Buyout Considered to be a Taxable Event?
IRS Code Section 1041 allows for any spouse to spouse transfer of property that is incident to the divorce process to be tax-free.
Transactions that are treated as tax-free under this Code include lump sum cash buyouts, title transfers, or refinancing to buyout your spouse and his or her interest.
Can My Spouse Force a Buyout of the Family Home?
Conversations that take place during the divorce process are nothing more than negotiations.
The buyout of a family home has to be mutually agreed upon by both parties. One spouse cannot force a buyout arrangement on the other spouse.
With that being said, a buying spouse can certainly improve the terms of their offer if their primary goal is to retain sole ownership of the home.