Should You Buy Out Your Spouse and Take the Marital Residence? How to Negotiate the Best Deal.

Should you buy out your spouse?

Should you buy out your spouse?

A common question for divorcing couples is “should you buy out your spouse”? Divorce often means a change in the status of the marital residence in one way or another. Either you are going to have one spouse remain in the house till the children reach the age of majority; or you are going to sell the house outright to a third party; or you are going to have one spouse buy out the other spouse.

What does that actually mean? It means if you have equity in the house, one spouse would take out a new mortgage loan just in his or her name to cover the existing balance of the mortgage on the house and also enough to buy out the other spouse.

So for example, if you have a house worth $200K which you bought for $100K, you would have equity of $100K ($200k – 100K). Imagine that you still owe $50K on said house. For starters, to buy out the other spouse, you would have to get a new mortgage loan for $100K. This would be equivalent to the outstanding mortgage ($50K) and the half of the equity due your spouse (50% of $100K equity). {Remember that equity in the marital residence is equally divisible between the two spouses in a divorce (all other things such as jurisdiction, prenups etc held constant).}

So you would pay your spouse his share of $50K ad then make monthly mortgate payments on the remaining $50K loan.

This essentially is called a buyout.

But the buyout can be symbolic in the sense that no money needs to change hands in order to have the effect of a buyout. The buyout amount (in this example, $50K) can be offset with, say, spousal support or alimony or a pension. So you would subtract this $50K from the settlement agreement you sign with your spouse and waive that equivalent amount in another asset to compensate your spouse for the $50K in equity they are giving up. Like this, you don’t need to take out a new mortgage nor does any money need to change hands.

If you are insistent that you want to buy out your spouse, you would have to redo the deed and take their name off the original mortgage so actually, you would still need a refinance to get that done.

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