No one plans for a divorce when making marriage vows, but sadly, almost half of the married couples end up divorcing. As part of the divorce, splitting assets is compulsory, and one hot-button topic for many divorces is the marital home. It’s not easy to decide who will be keeping the family house, considering the strong attachment and memories you have made there with the children.
When you are sure you can afford the home and the noncustodial parent allows you to have it, you should consider negotiating a house buyout to provide stability for the children and ensure they grow up in a family home.
Understanding a House Buyout
A house buyout occurs during a divorce where one parent buys the financial interest of the other spouse in the marital home. The marital home is often a stressful topic to discuss when splitting assets. Deciding to sell the house is not the best idea because you might not obtain the best market price in the middle of the divorce. Continued co-ownership is also not a wise idea because it might result in disputes. The best way to resolve the issue is to buy the other spouse’s financial interest in the property.
Usually, you need to be the custodial parent to buy out the noncustodial parent for the children to grow in the family home. Doing so is an excellent idea because the marital home provides the continuity the children need to grow. Selling the property is not an option, especially if children are involved. This means moving to a different neighborhood and environment, which might adversely affect their growth and development.
Generally, it’s not easy to find a spouse with cash at hand to buy out the other spouse, which is why you can employ different techniques for the buyout. You can agree to give up particular liquid assets or additional marital property worth as much as the seller’s financial interest in the family home. Further, you can give up the vacation home in exchange for the marital home.
Also, you can decide to refinance the existing mortgage loan and use it to buy out the other spouse. You could trade your alimony, pension or retirement account worth as much as your spouse’s share of the marital home. However, you must be very careful when giving up your liquid assets. After the buyout, you might find yourself unable to pay the mortgage, property taxes, and maintenance costs, ending up in financial crisis or bankruptcy after divorce.
The buyout process is not easy, and you can’t afford to make financial decisions based on emotions and attachments. You need to think through and arrange your finances for a buyout so that even after divorce, you don’t experience a financial crisis. A San Diego divorce lawyer will come in handy in this process, meaning you must hire one for legal counsel and to avoid financial trouble after divorce.
Associated Risks
Even though you want the best for your children, you must consider whether you can afford the house. A buyout comes with some risks for both you and your spouse. If you refinance the mortgage to buy out a selling partner, your last wish is to experience a financial stretch. Also, you might end up selling the home for a low price if its value depreciates in the future.
On the other end, the seller will equally assume some risk because if the house's value appreciates in the future, they will miss out on the interest. Also, the seller could be responsible for mortgage payout if the buying spouse stops paying the mortgage or the property taxes aren’t current.
Appropriate Time for a Buyout
If you are splitting with your spouse when the property prices in the market are poor, you might want to consider holding on to the property longer until the market stabilizes and the home’s value appreciates. That way, you can obtain value for this massive investment.
Recall, a buyout ensures continuity and a stable family home for the children at the most challenging time of their life when their parents are separating. If you are the supervisory parent, buying out the other spouse means the children will remain in their family home instead of moving to an interim apartment until the divorce is over. A house buyout ensures children don’t have to deal with another significant change in their life, providing some continuity.
If your spouse is buying you out of the house, you need to be cautious because you will still be liable if they decide to stop mortgage payment or property taxes. Even if you have removed your financial interest from the property, you will still be responsible for the mortgage loan until it is paid in full. You can only obtain financial stability by putting up the property for sale to a third party or taking out another mortgage loan in your name alone to buy out your spouse.
Determining the Worth of Your Family Home
Before you agree to a home buyout, it’s critical to have a clear picture of the property’s worth. California is a community property estate. All property obtained, purchased, or earned during the marriage period, even the family home, will be divided equally between the spouses during the divorce. Instead of co-owning the house or dividing it into two, one spouse can buy out the other’s share of the marital home.
If you are buying out your spouse, you need to be sure of the house’s value so that you don’t lose money by buying their share or interest in the home. The same applies if you are the selling couple. You want to know the reasonable market price of the house to obtain a fair share.
First, you must come up with a jointly acceptable worth of the home. If you share common ideas on what the home is worth, the better because you will divide the home’s worth minus debts by two to obtain the buyout value. However, if your opinion on the house's value differs from your spouse’s, you will need to bring in a real estate appraiser to establish the home’s worth under the current market rates. Hiring a real estate appraiser is approximately $300 to $500, which discourages many spouses. The appraiser will then produce a detailed formal report of the market value of the house.
Alternatively, you can go to a realtor if you don’t have money to pay for an appraisal. A realtor will inspect the house’s condition and inform you of the recent sales prices of homes comparable to your marital home in the locality. The homes that the realtor compares with your home are the ones called comparable or comps.
Similarly, you could visit websites like www.zillow.com to obtain an online estimate of the price of the home. Comps and online assessments are not the best to decide the home’s worth. Instead, you should be paying for an official evaluation. However, you can bring in another appraiser if the appraisal report is out and you can’t agree on the fair value. If you can’t agree on the two reports, the only option will be to go before a judge for a decision. The court will depend on the two appraisal reports for a ruling. Mostly, they will settle for the average of the reports as the home's fair value.
Once you have settled on the home’s value, the next step is to raise half of the home’s equity to buy out the selling spouse. In this case, equity means the house's market value, less any debts or mortgage on the home.
For instance, if your marital home is worth $600,000, with a $300,000 mortgage, the sum of equity is $300,000. You will divide this equity amount by two, which means you will be paying your spouse $150,000.
Also, the seller will be eligible for any separate contributions they made towards the house from their savings before marriage. For example, the seller contributed $40,000 from their pre-marriage savings towards purchasing the home. The spouse will be eligible for half of the equity of the house and a reimbursement of $40,000 after you sell the marital home. However, if you are on good terms with the seller, they might decide to wave the separate $40,000 contribution.
Compensation for separate property contributions can be complicated, especially if you and the other spouse can’t agree. In this situation, you will need to bring in a family law attorney to negotiate the matter.
Reasons for Adjusting the Market Value of the Home
Even after settling on the property's value, you can make adjustments as a couple to enable the buyout. The reasons for the adjustments are:
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Broker’s Fee
Even after buying out the other spouse’s share of the family home, you may need to sell it later. The same applies if you are the selling partner. The spouse who buys your share of the house might need to put it up for sale later when the market is good. You will need the services of a broker when putting up the house for sale. And because the broker’s fee will be an expense incurred when selling the home, you can deduct the broker’s fee from the agreed amount, even if you won’t be using a broker.
A family attorney is essential in this process because not all states allow for the deduction of broker’s fees. The buyer should cover closing costs upon selling the house. Your attorney will explain to you the rules that apply in California and guide you accordingly.
If you don’t plan on selling the estate soon, you should co-own it and sell jointly to avoid losing money if the property sells at a lower price.
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Overdue Maintenance
If any maintenance work is needed in the house but was postponed, you can leverage it when negotiating the buyout price. You can ask the selling partner to reduce the buyout price to pay for the maintenance put off during marriage. Besides, if the seller owes you money, they can knock the buyout price down as a way of settling or clearing debt.
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Spousal Support
You can convince the selling partner to knock down the buyout price to avoid spousal support payment when negotiating a buyout. When the supported spouse or the one entitled to spousal support is buying out the remunerating spouse’s financial interest or share of the marital home to live with the children, the supported spouse can give up spousal support in exchange for a reduction in the paying spouse’s share of the house. However, you must be vigilant with this because it might contradict the tax rewards of paying spousal support.
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Refinancing Problems
Recall, Mortgage Company will keep the selling partners on their list until the whole loan is repaid. Therefore, if you want a buyout to go through, you might consider refinancing the existing mortgage on the house and ensure it’s only your name that appears on the new mortgage. You can repay the outstanding mortgage and use the rest of the amount for a buyout by taking a new mortgage. The transaction here will proceed like you are selling the estate to a third party. The seller will sign a deed, transferring ownership rights of the property, and an escrow firm will handle the documentation and money transfer.
Before the buyout, make sure you run a title search to ensure no legal claims or liens on the property that you aren’t aware of.
On the other end, if you are the seller, ensure that the mortgage refinance is complete so that you are not held liable when the buying spouse stops paying the mortgage. Also, you must ensure that the escrow company has transferred your money before signing the transfer deed.
Selling the Family House during Divorce
If the prevailing real estate market prices are fair, you might consider selling the family house instead of a buyout or co-owning. Before selling the community property, you need to iron out several issues. These are:
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The spouse will remain in the house and cover expenses like mortgage, property taxes, and utility bills until the family house is sold.
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Find a realtor you both trust to put up the house for sale
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Determine the listing price of the home
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Develop a criterion for evaluating and accepting offers from potential buyers
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Decide how you will cover the costs associated with the home sale
Usually, once the house is sold, you will split the net profit from the sale equally. If a spouse made a separate contribution that requires reimbursement, it must be deducted from the deal's total cost before establishing the net profit of the sale.
And if you can’t decide what to do with the marital home when splitting assets, the court will be forced to intervene and resolve the matter.
Awarding the Family Home to one Spouse
Any community property or property accumulated by the couple during their marriage should be split equally. If you can’t agree on splitting the assets, the court will determine all your assets as a couple and order each spouse to receive half of the net assets.
However, economic circumstances might force the court to award one of the spouses the community property like a family home if the court deems it necessary to ensure equal division of the marital estate. In exchange, the other couple is awarded a cash payment or any other community property similar to the value of the marital home. Before deciding on this matter, the court considers the following factors:
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The characteristics of the property
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Any emotional attachments to the property
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The business expertise of both spouses and its impact on the spouse that keeps the community estate — If one spouse has a master’s in business administration and the other spouse is a stay-at-home parent. The court will award the stay-at-home parent the marital home while the one with an MBA will keep the family business.
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The spouse’s financial capabilities
It’s worth noting that even if you are awarded the family home, the court might order you to sell it, especially if you are experiencing financial problems. These cases are common because when one couple moves out, they will need to find another apartment, and suddenly they will have two houses to maintain with the same income. This might leave you with no other option than to sell the house.
If one of the spouses isn’t willing to sell the house, you can move to court to request a judge’s order to sell the property. The court will order a sale if it finds it appropriate.
Find an Experienced Family Law Attorney Near Me
When you are in the middle of a divorce, splitting assets can be stressful, especially in the marital home, which is your most significant investment. Luckily, you can minimize the hassle and time involved in the process by negotiating a house buyout. A buyout will even be suitable for the children, but it doesn’t come without risks. San Diego Divorce Attorney is ready to help you negotiate and minimize the dangers of the decision in San Diego. Reach out to us today at 858-529-5150 to discuss your case.
