Real Estate and Divorce What Are The Options?

Real Estate matters are stressful enough but a divorce can make these matters even more complicated. There are several options that spouses need to consider when deciding on what to do with the family house. 

Do you sell and split the profit, buy out the other spouse, or have a delayed buyout?

Selling Your Home (safest option)

Selling the family home can often be the safest option during a divorce and then splitting any profits according to a percentage agreed upon. It very well may be the least complicated of all the scenarios, but the most emotional. Everyone gets their share of the profits, and any joint debt to resolve. Any profits from the sale can be used to pay other legal expenses or payoff any community debt. All the risks of having community property are removed because the house is sold. You can then begin your search for your new home.

Buying-Out The Other Spouse (some risks)

What is a buy-out? A buy-out is when one owner of a property pays the other owner's share of the property's equity so that the co-owner can be released from the mortgage and removed from the deed as owner.

Sometimes clients want to keep the house because they do not want their ex to get the house, they have a strong emotional attachment to the home, or they want to keep the house because of the children.

If you choose to buy-out the other spouse and stay in the house you need to know it does carry risks and ones that you may regret later.

Some of the risks may be that you do not have funds to buy-out your soon-to-be ex-spouse, you may not be able to get qualified for a mortgage loan in the amount of your home's value, or you're feeling money-strapped about making a large mortgage payment while being a single parent (a cash-out refinance will likely increase the monthly payments). Lastly, the maintenance alone on a home could be more than you've bargained for and that is without any repairs that are likely needed.

In buy-out situations, the parties need to tread cautiously too and be sure to get an appraisal or get a detailed Competitive Market Analysis (CMA) showing the prices of comparable sales of houses in the neighborhood.  With this type of transaction, there is no actual sale of the property, you are just trading the "equity" that you have in the house. You need to determine what is your home is worth.

The typical cost to sell a home is 6%, and then another 1-3% in closing-cost of the sales prices. On average there is $5,749 for closing costs (including taxes), which can vary largely from state to state.  For sellers, closing costs usually include paying for an attorney, title insurance company, title transfer, and taxes.

The Delayed Buy-Out (the most risk)

Choosing the delayed buy-out if one spouse wants to stay in the home, and the other spouse would then continue to make monthly mortgage payments until they can afford to buy-out the other person. The delayed buy-out can lead to many new issues people need to be aware of. The biggest issue is moving out and not removing your name from the mortgage, which can lead to bigger issues later.

Did you know one 30-day late payment can negatively affect one credit score up to 100 points?! If your house spouse can't keep up the payments, the “out spouse” is still liable. It could ruin both spouses' credit, and if the home is foreclosed on it could affect your ability to buy another home in the future.

The out spouse might not like how or who is taking care of their “old home” now and disagreements can be triggered again.

You need to ask yourself, do you need this big house now? Would it be smarter to sell the home, downsize, or even rent a house or condo within the same community?

Getting a fresh start with a home might be the best and least risky choice,  as you move on with your new life. Look forward to "Opening Doors To New Beginnings"