Buying out your spouse's share - how it actually works

A buyout is the option most people ask about when there are children in the house, and it is often the right one. It is also the option with the most moving parts, so it is worth understanding the sequence before you commit to it in a settlement.

Step one: agree the value

Both of you need to accept the same number. That can be a REALTOR® valuation you both sign off on, or a formal appraisal, and in contested cases attorneys will sometimes agree to average two independent opinions. Whatever route you take, agree the method before anyone orders anything, because a value obtained by only one side is rarely accepted by the other.

Step two: work out the equity

Equity is the agreed value minus what is still owed on the mortgage and any other loans secured against the house, such as a home equity line. Some couples then subtract an allowance for the costs a sale would have carried, on the basis that the person keeping the house is not paying them. Whether that adjustment applies to you is a question for your attorney, not for me, but it is worth raising because it can move the figure meaningfully.

Step three: the refinance

This is the part that surprises people. Taking your spouse's name off the mortgage is not paperwork you can file. The existing loan was approved on two incomes, and the only reliable way to release one person from it is to replace it with a new loan in the remaining person's name alone. That means qualifying again, on one income, at today's interest rate rather than the rate you originally borrowed at.

• Talk to a lender early, before the buyout is written into an agreement. It takes one conversation to find out whether it is realistic.
• Check what the new payment would be at current rates. A buyout that works on paper can be uncomfortable every month.
• Ask the lender how they treat child support or spousal support in the income calculation. It varies.
• If it does not qualify, say so early. Discovering it after the decree is signed is far harder to unwind.

A quiet warning

If your name stays on a mortgage for a house you no longer own or live in, you are still liable for it. A missed payment by your former spouse lands on your credit file, and it can stop you borrowing for your own next home. A quit-claim deed changes who owns the house. It does not change who owes the debt.

How I help with this

I will price the house both ways for you: what it would realistically sell for, and what it is worth as the basis of a buyout. Seeing the two side by side is usually what makes the decision obvious, and it costs you nothing to look.