Who Gets the House in Divorce? Buyouts, Sales, and Legal Options

For the spouse who wants to keep the family home, it is a sanctuary. For the spouse who wants to sell the house, it is a source of uncertainty. No matter which side of the issue you are on, the question of how the family home is distributed is a source of stress and uncertainty.

Community Property and the Family Residence

From a legal perspective, a spouse with a community property interest in the family home doesn’t lose that interest simply because he or she moves out. Under California Family Code §2550, all community property is divided equally unless the parties agree otherwise.

However, from a practical perspective, the loss of income to the in-house spouse can raise concerns regarding home-related payments, including mortgage installments, property taxes, insurance, and maintenance. For the higher-earning spouse, the stress is similar. It’s one thing to pay for a house in which the family lives; it’s another to cover two households once the marriage has broken down.

The spouse residing outside the former marital residence may also be required to pay support for both the child and the spousal, so that the custodial parent can meet their own needs and those of the children of the marriage. For many families, the most straightforward solution is to sell the marital home. However, another option is a home equity buyout, which can occur in several ways.

Understanding Home Equity Buyouts in Divorce

A home equity buyout is an arrangement where one spouse purchases the other’s share of equity in the marital residence. This typically happens through refinancing, a cash-out loan, or asset offsets in the property settlement.

How the Buyout Process Works

1. 1.  Appraisal Agreement

Spouses, often through their attorneys, agree to hire a neutral appraiser. Both parties must trust the appraiser’s valuation, as this number forms the basis of equity calculations.

2. Determining Fair Market Value

Once the appraisal is complete and accepted, it establishes the property’s market value.

3. Calculating Net Equity

Mortgage balances and encumbrances (such as liens and home equity loans) are subtracted from the appraised value.

4. Negotiating the Buyout Amount

The equity is then divided based on whether the property is community or separate property. Spouses may offset buyout payments with other marital assets, spousal support adjustments, or concessions in the marital settlement agreement.

Buyouts vs Selling: Pros and Cons

Choosing between selling the marital residence and pursuing a buyout depends on financial circumstances, child custody arrangements, and long-term stability.

• Advantages of a Buyout: Stability for children, preserving sentimental value, avoiding real estate commissions, and listing stress.
• Disadvantages of a Buyout: One spouse must qualify for a loan, refinancing costs may be high, and the out-spouse may remain exposed to mortgage liability if refinancing is delayed.
• Advantages of Selling: Immediate liquidity, clean financial separation, shared responsibility for the sale process, and eliminates of the risk of foreclosure.
• Disadvantages of Selling: Emotional upheaval for children, loss of potential future appreciation, and relocation stress.

Divorce and Homes Without Equity

In cases where there is little or no equity, disputes can become more emotional than financial in nature. A house with no equity may still hold sentimental value, which one spouse can use as leverage to negotiate a settlement.

For example, if one spouse wishes to remain but the other wants to sell, the out-spouse may demand concessions in custody arrangements or asset division in exchange for agreeing not to force a sale. Even if the sale produces no financial benefit, it may still be ordered by the court if the debt outweighs the value.

Court Considerations in Family Home Division

Courts make decisions about the marital residence based not only on property law but also on considerations of child custody and support. In cases involving children, courts often strive to preserve stability.

• Case Example – Marriage of Burgess (1996): The California Supreme Court emphasized the custodial parent’s presumptive right to decide where children live, underscoring the importance of stability.
• Custody and Home Buyouts: Courts may allow the custodial parent to remain in the home if they can finance a buyout, even if that means granting higher support awards.

Ultimately, if the custodial parent cannot refinance or assume full responsibility for the mortgage, the court may order the property sold.

Lending Requirements After Divorce

Following the 2008 financial crash, “no doc” and “no qualification” loans largely disappeared. Today’s lenders require clear proof of ability to repay:

• Income-to-Debt Ratios: Borrowers must meet federal guidelines.
• Use of Support as Income: Spousal and child support can be counted as income if documented through a court order and a consistent payment history.
• Creditworthiness: Divorce can negatively impact credit scores, making refinancing more challenging.
• Missed Refinancing Deadlines: If the spouse remaining in the home is unable to refinance within the court-ordered deadlines, the home may be ordered to be sold.

Conditional Scenarios in Home Division

Bankruptcy During Divorce

If one spouse files for bankruptcy during the divorce, the automatic stay may delay property division. The home could be treated as part of the bankruptcy estate, which would complicate buyout negotiations.

Foreclosure Risks

If neither spouse can afford mortgage payments during divorce proceedings, foreclosure may become inevitable. Courts will often intervene to order a sale before foreclosure, as it can damage the credit of both parties.

Multi-Property Divisions

If a couple owns multiple properties, the courts must determine which ones are community property versus separate property. Vacation or rental homes may be liquidated to generate cash for buyouts or to settle support obligations.

Financial and Tax Implications of Selling vs Buyouts

Property division carries financial consequences beyond simple equity splits:

• Capital Gains Tax: Under IRS Code §121, individuals may exclude up to $250,000 ($500,000 for couples) in gains if ownership and residence requirements are met. Post-divorce sales may limit this exclusion.
• Mortgage Liability: If a spouse fails to refinance, both parties remain liable, which can impact their credit and borrowing ability.
• Moore/Marsden Calculations: When one spouse contributes separate property funds to acquire or improve a community property home, courts apply complex formulas (Moore/Marsden) to divide equity.

The Role of Experts in Property Division

Property division often requires input from professionals beyond attorneys:

• Forensic Accountants: To trace separate vs community property funds.
• Certified Divorce Financial Analysts (CDFA): To project long-term financial outcomes of selling vs buyout.
• Licensed Appraisers: To establish unbiased property values.
• Mortgage Brokers: To guide refinancing or cash-out loan strategies.

Engaging these experts strengthens negotiations and provides courts with credible evidence.

FAQs About Divorce and the Family Home

Who gets the house in a divorce?

It depends on state law, whether the property is community or separate, custody arrangements, and each spouse’s financial ability to maintain the property.

What happens if the house has no equity during a divorce?

Courts may order the house sold, assign it to one spouse, or allow for negotiated offsets if there is no financial value to the property.

Can I use spousal or child support to qualify for a refinancing loan?

Yes. Courts recognize support as income if it is court-ordered and consistently paid, but lenders impose strict documentation requirements.

What if I want to keep the house but cannot refinance?

If you cannot refinance or offset your spouse’s interest, the court may require the home to be sold.

Do courts always let the parent with custody keep the house?

Not always, but the best interests of the child often weigh heavily in property division. Custodial parents may be favored if they can meet financial requirements.

What is a Moore/Marsden claim?

In California, a legal calculation determines how much a spouse may be reimbursed for separate property contributions to a community property home.

Get Legal Help from Reape Rickett

The division of the marital residence is one of the most complex issues in divorce. Questions of equity, refinancing, child custody, and tax consequences often overlap, making professional legal guidance essential.

At Reape Rickett, our attorneys have decades of experience helping clients navigate property division, home buyouts, and divorce litigation. We understand the legal intricacies, financial risks, and emotional challenges, and we are committed to protecting your rights and long-term financial security.

If you are facing divorce and want clarity about your options for the family home, contact Reape Rickett today.