You’re in the middle of a divorce and you want to stay in your home. You and your spouse both feel the stability will be good for the children. While it may give your children stability, it may just put you in the poor house. Often, the party who will not be living in the home any longer does not want to be responsible for it. This leads us to the concept of “buyout” – where one party buys the other party’s share of the home.
Often, this is done through refinancing the current mortgage with only one spouse’s name on it. For example, suppose your home is worth $400,000 if it were to be sold on the real estate market. Also, suppose when the parties decide to sell, there is still a $200,000 mortgage on the home. In simple terms, the profit if it were to be sold or the equity in the home would be approximately $200,000. Therefore, each of you would walk away with $100,000 from the sale of your home. If one party decides to buyout the other party, he or she would pay his or her ex-spouse $100,000 or the amount the ex-spouse would have been entitled to if the house were sold on the real estate market. The problem is many people don’t have that kind of money available to them. Often the solution is to refinance the mortgage for more than is currently owed on the home in the name of the spouse that wants to keep the home. By obtaining a new mortgage in the amount of the current mortgage plus one half the equity in the home, the spouse staying in the home is able to give the other spouse his share of the equity and transfer the house to her own name. It is as if the spouse staying in the home bought the home by herself. The difficulty becomes obtaining a new mortgage based on one income.
When you apply for a mortgage, the bank or mortgage company looks at your income, your assets, debts and monthly payments. If you are the spouse that would like to keep the home but is also paying alimony and child support, those will be strikes against you. If you are the spouse that is being paid alimony and child support but only has a part-time job, the banks won’t consider this new found income in the form the of alimony and child support until it has been paid to you consistently for a period of 12 months. Most ex-spouses don’t want to wait 12 months to be bought out of a home. Usually, the parties want to sever ties quickly.
The other possible issue for the spouse receiving alimony and child support is the lack of a full-time job coupled with a shortage of assets. Let’s suppose the spouse receiving alimony and child support wants to buyout the spouse making those payments. Going back to our original example, she forgoes taking assets such as the 401(k) or stocks and bonds as payment for her share of equity in the home and then is only responsible for the mortgage of $200,000 which she must still refinance into her name only. She has no assets to add to the application and financially, no back up in case she loses her part-time job or her ex-spouse stops paying alimony. The bank sees this person as a risk and she may not qualify for a loan.
Bottom line: Make sure you speak with a qualified mortgage person and/or real estate attorney before you move forward and agree to buyout your spouse. Our divorce lawyers in New Jersey at Lyons & Associates, PC pride ourselves on giving sound advice in many areas, including real estate. We place a premium on personalized service and attention. For a private consultation, contact us online or call our offices at 908-575-9777.
Author: Chris Ann Wright