If you're going through a divorce, deciding what to do with your home can be challenging. This is because you have probably spent time and money renovating it, and you may have even started making payments on your mortgage. You are also likely to have many memories of your marital home with your children. The good news is that there are several options available for dividing your property in a way that both you and your spouse can agree to.
You can quickly reduce the impact the divorce will have on the children. Negotiating a buyout can be a viable solution to giving your children the best with little financial constraints. In this blog, you will get to know everything regarding a house buyout, including when professional help might come in handy.
Understanding a House Buyout
Buyout refers to instances when one of the divorcing spouses purchases their counterpart's interest in the family house. For example, if you have $250,000 in your home's equity as a couple, the spouse buying out will have to pay half of the share, which is $125,000.
If there is a pending mortgage loan balance, you will have to consider it too. For instance, suppose the balance is $250,000, and the equity in the house is $50,000. You will need to pay off the mortgage and buy out your spouse's equity amount. You will thus pay a total of $275,000 to gain ownership of the house.
The equal equity in the house applies since the law considers the home a community property. According to California laws, community property refers to everything the couple owns together or has accumulated since they got married. During the divorce process, they will share all these properties 50-50.
Determining the Person Who Should Buyout
An amicable buyout between spouses is essential to keep the children's lives stable. A court cannot impose buyouts on divorcing couples. It can be negotiated, but both spouses must agree to it. A custodial parent will often buy the other spouse out of the home to provide stability and continuity for their children. However, they must be prepared for the financial burden that comes with the responsibility.
In this new era, where cash is tight and mortgages are inflated, many couples use other assets to pay the selling spouse's shares. One option is to use money, another is to refinance the mortgage, and another is to trade off other assets such as retirement funds, pensions, or even alimony. It may take some negotiation, but it can work to both parties' advantage.
Another alternative is to give up a vacation property so the family can stay in the family home. But what if the purchasing spouse wants to refinance their mortgage? To get the loan and receive the best rate, they need good credit and proof of income.
If the cost of the home is too much for the purchasing spouse to handle at the time, the spouse can buy it out over time. Until he fully buys out the house, they will co-own it. Your divorce agreement should outline when and how to pay additional expenses like taxes, repairs, and interest.
Associated Risks
Whether a buyout is suitable for a couple often depends on valuing both potential risks and rewards. The selling spouse likely faces the risk of lost future appreciation, while the purchaser is at the risk of depreciation.
If you agree to pay the home's principal over time, there are some liabilities to consider. For example, if you're not currently on a mortgage payment or a property tax, the seller could be responsible for those after you move in. It also involves more work on the buyer, as they have to do their share of the work with the house.
With the arrangement of making gradual payments, caution is crucial. If your ex fails to make mortgage payments or pay property taxes, you could be stuck with the bill. In most cases, a mortgage provider will refuse to remove one spouse from the loan until it is fully paid off. Only selling the property to a third party or refinancing the home loan in your name alone will clear your possible liability and remove your name from the loan, allowing you to pay off your spouse.
Determining the Home's Value
Determining the value of your home might not be a big deal if a couple has similar thoughts on its value. If you do not agree or require more information, you can ask real estate agents who will give you current sale prices of homes similar to yours within the same locality.
You can as well go online to sites like eappraisal.com. Once you enter your address, you will receive an estimated value for your home. However, this might not be an accurate way of obtaining your home's value since, in many cases, the comparable houses might not be identical in all aspects.
The best option is to hire a professional appraiser to inspect the property and look at comparables in the area to determine the fair market value. It can range from $300 to $500, depending on how much information the appraiser needs to provide a reasonable estimate.
If the spouses can't agree on the price of their marital home, they may need to take the matter before a judge. In such situations, the judge will usually assign an appraised value similar to the one submitted by an appraiser. If the couple submitted two appraisals, the judge might average them.
Upon reaching an agreement on the home's fair market value, you might adjust it for various reasons. Here are some standard possible adjustments:
Refinancing Issues
When buying a home, most people opt to combine the buyout with a mortgage loan. A mortgage is taken out in the buyer's name. The loan amount is calculated to pay off the previous mortgage and make the selling spouse whole for their share of the property.
Let's consider this scenario; as a couple, you have a mortgage loan with a balance of $200,000 and $100,000 equity in your house. If you are purchasing half of your spouse's equity, then you will need a loan of $250,000. With this amount, you will be able to pay the original mortgage loan ($200,000) and half of the equity to your spouse ($50,000). You will thus be the sole owner of the house.
This transaction will be like selling to a third party. Your spouse will sign off the deed to transfer ownership of the house to you. An escrow company will take care of transferring the funds and a more significant part of the paperwork.
This entire process will most highly happen at the same time. As the selling spouse, such might be your best scenario. However, if you are not going to close, it is best to wait until the refinancing is complete and you've received your money before signing the transfer deed.
As the buying spouse, ensure that you do your homework by completing a title search. Make sure there are no old claims or other legal issues attached to your title. The title company taking care of the transaction should handle this on your behalf.
Deferred Maintenance
You can always use deferred maintenance to your advantage in negotiating a buyout. For example, if one spouse wasn't taking care of the house during their marriage, the buying spouse can ask for a lower price. Or, if the selling spouse is paying off debt, they might be willing to lower the cost to counterbalance the property division.
Broker's Fee
Though you won't be hiring a broker, the buying partner sometimes negotiates with the seller to deduct an amount equivalent to half of the standard broker's fee when the deal is finalized. This deduction may occur because the buying partner will incur broker's fees in the future when they sell their home. Although some states may not allow this, in California, you can take this direction. However, your lawyer can give you more detailed regulations to follow.
If you are handling your divorce yourselves, it would be best to bring in a divorce attorney or a real estate agent knowledgeable in the field to give you professional advice. If you are looking forward to selling the property in the future, you might consider joint ownership until that time comes. You will thus avoid losses when you receive the closing costs.
Spousal Support
Negotiation of spousal support may happen if there's a disagreement about the buyout price. That's because, theoretically, the selling spouse could lower the buyout price to avoid paying spousal support. Alimony is challenging to deal with for anyone, but especially for parents. If the spouse that doesn't need financial support agrees to relinquish all property rights in the house and sell their share at a reduced price, they might avoid spousal support and keep the children in place. However, this routine may not benefit paying spouses because they will not take advantage of tax credits.
Divorce Buyout Agreement Form
It is always important to document all legal agreements, especially in divorce proceedings. It is thus crucial that the buying spouse have a divorce buyout agreement form ready. By the time you acquire this form, you must know the asset's value and the broker's fee. Suppose you decide to sell the house in the future. Failure to file this form with other documents might lead the court to distribute your property and share the assets appropriately.
You can obtain a buyout agreement form by following different channels:
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Hiring an attorney: You can use the services of an attorney to prepare this document for you. You will need to pay a significant amount for service fees.
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Downloading a template: Several websites have free templates of divorce buyout agreement forms; you can download one. However, this is not a safe option as you can get scammed or obtain an incomplete document.
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Drafting one personally: this is not a wise option since the presiding judge will go through the document. You might accidentally make a mistake that will cost you dearly.
Note that in this form, you can indicate the buyout agreement you have with your partner.
Tips To Consider When Negotiating a House Buyout
When negotiating a buyout with your divorced spouse, there are some tips you should consider to ensure a smooth and flawless process.
Enlisting a Professional
If you're in the midst of a contentious or civil divorce, it's advised that you seek the help of several professionals to ensure your experience is both smooth and successful. A financial expert can help with short- and long-term budgeting, while an attorney can guide you through the negotiation process to make sure both parties are satisfied with the results. A professional appraiser from a real estate company will give you accurate, fair market value for your home.
Research
When it comes to the buyout process, there are several things you need to do before sitting down with your ex to negotiate. First, you need to sit down with a financial professional to evaluate your finances. Bringing this document into negotiations will help you build a strong case and ensure that you don't overextend yourself on the home of your dreams.
Keep the Process Civil
Whether your relationship with your ex is volatile or peaceful, being civil and sensitive to each other's needs is essential when hashing out a post-separation settlement. Too often, the divorcing parties become so involved in their interests; they can't see it from their ex's perspective. However, if the situation turns abusive, an attorney or another mediator can speak on your behalf. Remember to be respectful and try to focus on the best outcome for both of you.
Be Inquisitive
It's important to ask questions every step of the way when negotiating, whether you're the buyer or seller. This allows you to get into your partner's head and figure out what they are thinking. If you come to an impasse, try examining your partner's reasons for wanting what they do. Chances are, you can find a solution that makes both of you happy.
You can ask questions like:
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Should I forego alimony in exchange for the purchase of the marital home?
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Will my credit be ruined if I agree to my spouse's home purchase? And how am I going to defend myself?
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What should I do to keep the marital house but can't afford to pay my husband to leave? What other alternatives do I have?
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When separating a marital residence, what are the alternatives to a buyout?
When Is a Buyout Impossible?
While a house buyout can be a good solution for divorcing couples, it is not always the most viable option. There are some instances where house buyouts aren't feasible, like when there are third-party owners involved. There are also situations where one spouse cannot afford or justify the price of a house buyout. Should this happen, speaking to a financial planner or an attorney can help you figure out what your next steps should be.
Alternatives to a Buyout
If you can't agree on the buyout terms or cannot find the assets (or cash) to buy your former spouse out, you probably won't be able to put together a buyout. This is completely fine — if one partner does not want to sell, don't force them. You can still find other options that work for both of you.
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You have the option of remaining a co-owner of the property. This is an excellent option if you don't mind co-parenting or require some time to figure out what you want to do. You can both (amicably) decide what to do later.
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You can also sell the house and divide the proceeds. If you have children, the transition may be more difficult. This, on the other hand, is a fantastic strategy to ensure that all sides get their fair amount.
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It's also possible to agree to sole ownership. Ceding the house is a smart option if you want the divorce to go through quickly. Depending on your situation, though, this could be extremely devastating to your finances.
Finding a San Diego Family Law Attorney Near Me
Divorce is a delicate matter that requires a lot of expertise to ensure an excellent turnout for both parties. It gets more complicated when deciding what to do with the property, especially the family home. While there are various alternatives to adopt, a buyout is sometimes the best option to resort to.
It would be best to make thorough consultations with various professionals to not miss out on crucial elements. If you are a resident of San Diego and contemplating a buyout, we at the San Diego Family Law Attorney will be right by your side to offer you all the assistance you need at an affordable cost. Our practice deals with everything concerning divorce, so you can rest assured that you will receive all the help you need. Call us today at 619-610-7425 to schedule an appointment with us.
