What Happens to the House in Divorce: Navigating the Real Estate Maze

Not surprisingly, figuring out how to divide the house can be a source of stress in divorce proceedings. A house is often one of the largest joint assets a couple can have—and feelings about how to handle this asset may be mixed. One person may want to sell, while the other spouse wants to continue living in the home. Questions of who bought the house or who paid the for house might incite further disagreements over what happens to it.

Here are some of the most common questions agents handle about what happens to a house in a divorce—and what you need to know.

How Do You Keep Your House in a Divorce?

A lot of people wonder if they can keep their home in a divorce, but don't fully realize the financial consequences of doing so. The problem is usually inadequate funds, rather than the ex-spouse. Few homes that the courts are trying to divide have been fully paid off by the time couples are divorcing. As a result, even if you get to keep the house, it’s not a free ride. You’ll likely be dealing with a mortgage payment that was based on income from two people - not one. 

If you want to keep your house in a divorce, you’ll need to: 

• Buy out their share of equity (not the price of the home). If you’ve collectively built up $100,000 worth of equity in the home, chances are you need to pay them $50,000 for their share.
• If the home is paid off: get them to sign a quit-claim deed to get them off the home’s deed
• If the home isn’t paid off: refinance the mortgage so that it’s in your name. You’ll need to be able to pay for the loan with your own income.

Basically, you should not expect to be able to stay in the home unless you have ample resources to pay for it - which may be difficult for people going through a divorce.

However, this is assuming that you and your spouse can’t reach an agreement on your own. 

You are absolutely allowed to decide on what feels like a fair arrangement outside of the courts. If what really matters to you is getting the house—and you have the means to pay for it, and your spouse agrees to it—then you can keep the house even if it’s not what a court would consider a “fair” division of assets.

Sites like hellodivorce.com help couples divorce amicably, without the fighting and expensive lawyer and divorce proceedings. 

Is a divorce buyout of a house a taxable event?

If your spouse buys you out of the home during a divorce, this is treated as a non-taxable event in the U.S. 

The Capital Gains tax can apply to the sale of the home (to a third party), but most couples will likely benefit from the capital gains exemption and owe little or nothing as a result—the first $500,000 from a home’s sale can be excluded from taxable income if the couple lived there for two years before selling. In other words, if your home sells for $515,000, only $15,000 will be taxed. 

If you buy out your spouse and then sell later, you get the individual Capital Gains exemption, which amounts to $250,000 per person.

Can you buy a house while going through a divorce?

When you’re going through divorce, unsurprisingly, you may find yourself in need of a new place—and renting for a year or two may not be appealing (especially if you have kids and want to make room for them). 

While you can buy a house while going through a divorce, it can be risky and difficult.

Even if you buy a home while you’re separated, depending on the circumstances the house could still be considered marital property. If you’re looking to fully protect yourself and your assets, it’s not a good idea to create a situation where your ex-spouse is legally entitled to part of your home.

Consult either a lawyer or a divorce expert in this situation because the law varies from state to state. Texas, for example, doesn’t actually recognize legal separation—so even if you’re living apart, Texas still considers you fully married!

That means your spouse will be entitled to half your property - and you’ll also still be responsible for their debt.

Of course, if you’re on good terms with your ex-spouse and they’re not interested in fighting you, then you have plenty of options available. The courts don’t have to split up your assets. That’s just what happens when you can’t agree without outside help.

Other options include signing a “post-nuptial” agreement, which is like a pre-nuptial agreement except it outlines that, for example, any property purchased by one individual after signing the post-nuptial agreement is owned by them alone once the divorce is finalized.

Who gets the house in a divorce with children? 

If you have kids, you might be worried about adding to the stress of the divorce by also requiring them to move out of the house they’ve known. Unfortunately, in some cases that may be necessary.

If you’re the custodial parent, the court can award you exclusive possession of the home during the separation. That means you’re allowed to live there with your kids, without the spouse.

If you receive the home as part of the court’s divorce proceedings, you’ll likely need to buy out the other spouse. If your home has $100,000 in equity, for example, you might need to give them $50,000 and be able to pay for the rest of the mortgage yourself (the exact amount will likely depend on your state, and/or your unique circumstances).

Although you may receive child support and/or alimony support, the court isn't going to require your ex-spouse to continue paying for the mortgage of a home they don’t live in. So sometimes, it may just be easier to sell and move on with your half of the money into a home you can more easily afford on your own. 

How can a stay-at-home parent keep the house in a divorce?

It can be difficult, but not impossible for a stay-at-home parent to keep the house in a divorce. It comes down to the division of assets, and whether that person can continue to make the mortgage payments (if they exist) by themselves. 

Of course, if both spouses agree that the stay-at-home parent stays in the house—and set up a plan for it—then that’s fine too, but in many cases, lawyers have to get involved.

If the home is already paid off, buying out the spouse who is leaving the marital home will require substantial assets. If the couple has assets like a 401k, a savings account, or a car purchased during the marriage, some of that money can be used to buy out the spouse.

If the home is partially paid off, buying out the spouse won’t be so difficult—but it will likely mean the stay-at-home spouse needs a source of income to pay off the mortgage. Although alimony can be granted to a stay-at-home spouse, it may not be enough to cover all the costs of a mortgage along with various living expenses.

If you have to sell, here's how you save

Sometimes selling your home is going to be inevitable in a divorce—even if you wanted to keep it. Since you'll likely need to split the proceeds, retaining as much equity as possible (so that you can use it for your next home!) is key. 

Unlike traditional brokerages, Houwzer is shaking things up by offering full-service listing for 1%. Rather than cutting corners, they're simply bringing the costs of selling a home back in line with what it actually costs to sell a home.

On average, clients save $16,000 in commission fees by working with Houwzer—and can save up to $2,500 if they buy their next home with Houwzer as well.