In a recent article regarding whether or not to sell your house in a divorce, we briefly discussed negotiating a buyout in a divorce. In order to negotiate a buyout, couples must decide on the valuable consideration of each person’s portion of the house. If couples are not communicating well, which is often the case, this can be especially challenging.
While selling a house as-is to a company like M1 Property Group is an attractive and popular option to simplify the selling of the house, sometimes one partner feels strongly about keeping the house, in which case a buyout is negotiated.
What is a buyout?
A buyout occurs when one person purchase’s the others interest in the property. This occurs in a lump sum, OR in payments made over time. Additionally, these payments do not have to be determined in cash, meaning that a portion of the buyout could be increased or decreased for either person to offset other costs owed. For example, one spouse may forfeit interest in the other’s retirement plan or other assets in exchange for the house.
There are several risks involved in a buyout. There is risk for the person purchasing the house from the other if the house depreciates in value after a price is determined. However, the person selling may risk losing money if the house appreciates in the future. Lastly, because there are tax benefits associated with paying spousal support, then the spouse responsible for the support may lose out on certain tax benefits.
First, the divorcing couple needs to determine the value of the house. Real estate agents are usually not involved in the buyout process, so unless you have had the house recently appraised, you may have to do some research.
If you have a friend that is an agent, they can provide you with recent home sales in the area, giving you clues as to your home’s value. Additionally, and perhaps more reliably, you can hire someone to appraise the house. While an appraisal can cost between $300-500, it will remove any debate as to the current value of the house, and hopefully make negotiations easier. If after an appraisal, the couple still cannot negotiate valuable consideration, a judge can decide (but he will most likely want to rely on an appraisal.)
Below are some considerations regarding how to determine the buyout price:
- Maintenance: If the house needs maintenance or updates, this can affect the worth of the house, and what one spouse receives.
- Spousal support: If one spouse potentially owes the other money after the divorce, their part of the house value might be used for the amount owed.
- Refinancing: Consider the cost to refinance the house. If one spouse is keeping the house and buying out the other person, they will need a loan in the amount of the remaining total owed.
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