Divorce With Respect

In a divorce, should you pay your spouse for the house?

On Behalf of | Jun 27, 2019 | English, Firm News | 0 comments

The house you shared and where you raised your children as a married couple can have intense emotional power. As a result, it may be hard to leave it after a divorce.

It is also probably your biggest financial investment and numbers alone can provide the best argument against walking away from the house.

If you decide you want to keep the house and pay your former spouse for their share of the home, how might that work? Try visualizing the idea as a strictly financial transaction.

You would be buying out the other party’s interest, so what is it worth?

If you were a stranger buying the house today, what would its value be? Also, did either party make any payments, such as a down payment from their separate property?

First, know the equity or “how much house” you own as a couple. Some people estimate this by subtracting the current balance on the mortgage (and any other debts on the property) from the home’s purchase price.

That number is not very reliable because many factors affect the value of the home, like the changing local market and physical changes to the house and its surroundings.

A thorough, experienced appraiser would give the most reliable estimate, and other less expensive methods are also available.

Structuring a possible deal

California is a 50-50, community property state, so you would generally owe your spouse half of the equity in the house. But there are other things to consider.

If one spouse used assets they had before the marriage to make the initial down payment, and that spouse had documentation to prove it, this may affect how much you would pay to buy out the spouse’s interest in the property.

Also, consider the size of the mortgage you want after the transaction. If you used some of your available cash or cash borrowed against the equity to buy out your spouse’s share, better or worse post-divorce situations could result for you.

You might also want to consider refinancing the house in your name early in the divorce process. This would require the other party’s consent. For various reasons, a refinance might clarify the future and simplify the present, making for a better experience for everyone.

Most importantly, think through as many of the legal, financial, and personal consequences as you can before you get your heart set on a specific living arrangement.