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Divorce often involves dividing the largest asset a couple owns: their home. The process depends on state law, how title is held, and whether spouses can agree on terms. Understanding options helps couples make informed decisions during a difficult time.

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How Property Division Works

Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin (and Alaska by agreement).Property acquired during marriage is owned 50/50 regardless of whose name is on title. Divided equally unless parties agree otherwise.
All other states. Property divided “equitably” based on factors like marriage length, income, contributions, and future needs.Equitable doesn’t always mean equal. Courts have discretion.
Separate property (usually not divided):
  • Owned before marriage
  • Inherited by one spouse
  • Gifted to one spouse
Marital property (subject to division):
  • Acquired during marriage
  • Improvements to separate property using marital funds
  • Appreciation of separate property due to marital contributions
Property division gets complicated when separate and marital assets are mixed. A home owned before marriage but paid down with marital income may be partially marital property.

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Options for the Marital Home

Most common outcome. Keeping spouse typically buys out the other’s equity share.Requirements:
  • Agree on home value (appraisal recommended)
  • Calculate equity and buyout amount
  • Refinance to remove departing spouse from mortgage
  • Execute deed transfer
Property sold, remaining equity divided per agreement or court order.Works best when:
  • Neither spouse can afford the home alone
  • Both want a clean break
  • Home has significant equity to divide
  • Market conditions favor selling
Both remain on title for a period, often until children finish school or market improves.Challenges:
  • Must agree on expenses, maintenance, decisions
  • Both remain liable on mortgage
  • Delays financial separation
  • Requires ongoing cooperation
One spouse keeps home; other receives equivalent value in retirement accounts, investments, or other property.Watch for: Different asset types have different tax implications. Trading 100,000 in home equity for 100,000 in retirement funds may not be equal after taxes.

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The Mortgage Problem

Transferring title doesn’t change who owes the mortgage. This creates complications.
Even after divorce, both spouses remain liable until loan is refinanced or paid off.If keeping spouse stops paying, departing spouse’s credit suffers and lender can pursue either party.
Keeping spouse must qualify for mortgage alone. Requires sufficient income, credit, and equity.If unable to refinance, options include:
  • Sell the home
  • Departing spouse remains on loan (risky)
  • Loan assumption (rarely available)
Court can order one spouse responsible for mortgage, but lender isn’t bound by this. If payments stop, lender pursues whoever signed the note.Divorce decree only creates recourse between spouses, not protection from lender.
Never assume a divorce decree protects you from mortgage liability. If your name is on the loan, you remain responsible until it’s refinanced or paid off, regardless of what the decree says.

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Determining Home Value

Accurate valuation is essential for fair division. Options:
  • Appraisal: Professional appraiser provides objective value. Cost typically $300 - $500. Recommended for contested divorces.
  • Comparative market analysis: Real estate agent provides estimate based on recent sales. Free but less formal.
  • Agreed value: Spouses agree on value without third party. Works when both trust each other.
Equity calculation: Home value minus mortgage balance equals equity. Divide equity per agreement or court order.
Example: Home worth $400,000 with $250,000 mortgage has $150,000 equity. If split equally, each spouse entitled to $75,000.

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Transfer Process

1

Finalize divorce agreement

Settlement agreement or court order specifies who gets property, buyout terms, and timeline.
2

Complete buyout (if applicable)

Keeping spouse pays departing spouse their equity share. Often done through refinance proceeds.
3

Refinance mortgage

Keeping spouse refinances into their name only, removing departing spouse from loan.
4

Execute deed transfer

Departing spouse signs quitclaim deed transferring their interest to keeping spouse.
5

Record the deed

File with county recorder to update public records.

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Tax Considerations

Property transfers incident to divorce are not taxable events. No capital gains triggered at transfer.
Keeping spouse inherits original cost basis. May owe capital gains when eventually selling.Primary residence exclusion ($250,000 single, $500,000 married) may apply if ownership and use tests met.
Only the spouse paying the mortgage and living in the home can deduct interest. Cannot deduct payments on home you don’t occupy.

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When Spouses Can’t Agree

If negotiation fails:
  • Mediation: Neutral third party helps reach agreement. Less expensive than litigation.
  • Collaborative divorce: Each spouse has attorney, all commit to settlement without court.
  • Litigation: Court decides property division. Expensive, time-consuming, outcome uncertain.
Courts can order property sold if spouses cannot agree and neither can buy out the other.

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Protecting Yourself

During divorce:
  • Get professional appraisal for accurate value
  • Understand your mortgage liability
  • Don’t sign deed until refinance is complete
  • Get court order specifying responsibilities
  • Document all agreements in writing
If keeping the home:
  • Ensure you can afford payments, taxes, insurance, maintenance alone
  • Refinance promptly to remove ex-spouse
  • Update homeowners insurance
  • Consider long-term affordability, not just current ability

Next: Buyout Scenarios

One owner buying out another

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