Private Residence Buyout in a Divorce
Deciding to divorce includes the consideration of many details, such as the division of marital assets. For most couples, their private residence is the most valuable property they own. Sometimes, agreeing on how to split your house can cause strife during the divorce. However, when both husband and wife come to an equitable conclusion and decide that one will continue to live in the residence, a buyout by the spouse who is leaving must be accomplished to finalize the agreement.
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Overview
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Before a buyout in a divorce can be reached to the agreement of both parties, ownership must be determined. In states with community property rules, assets obtained after the marriage generally belong to both spouses, regardless of whose name is on the title. Exceptions include gifts given to one spouse, which are not included as community property. In equitable distribution states that do not consider how or when the property was purchased, the courts may find that the private residence should be divided evenly. Therefore, a buyout may not be necessary if it's found that only one spouse legally owns the residence.
Appraisal
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When an agreement has been reached as to which spouse will remain in the property and buyout the other, the market value must be determined. Comparing your house with others listed for sale does not always give an accurate value. Also, if the market is changing rapidly, recent sales may not reflect how much your house is worth. A licensed appraiser should be hired to give the best professional opinion of value. The spouse who is leaving may want the value to be higher than the spouse who must buyout ownership. If both spouses cannot agree on the appraiser to use, they may each hire their own, add the values together and divide by two to obtain the average of both appraisals, if different from each other.
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Mortgage Qualification
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If the house is not paid for in full or the remaining spouse does not have enough money to buyout the spouse who is leaving, then a new mortgage or refinance must be obtained. There must be enough equity in the house for a buyout, and the spouse who is staying must be able to qualify for a mortgage as an individual without counting the income of the other spouse. When a mortgage is approved, the money owed is given to the departing spouse, the title is changed to accurately reflect ownership and the buyout is complete.
Dividing Equity
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If the remaining spouse cannot buyout the other spouse and is not able to qualify for a new loan on the single income with new terms, but can afford to pay the current mortgage, a provision in the divorce settlement may allow the remaining spouse to use the house, make the payments and then sell it at a later date to satisfy the amount owed to the spouse who left. A date by which the house is sold and a provision stating that the payments will always be kept up-to-date is imperative to ensure that the credit rating of each spouse is not adversely impacted by default of the mortgage.
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