How to Buy Out a Spouse From a Mortgage

Few divorce issues are more complicated than figuring out what to do with the marital home. If you decide to keep the home for yourself, both of you must determine how to handle future mortgage responsibility and any equity in the property. To retain full ownership of the home and responsibility for the mortgage, you might buy out your spouse's ownership interest by paying them a share of the equity. You can pay an exiting spouse's share by tapping into your home's equity or using other marital assets instead of equity.

The buyout process begins with determining your home's market value. It's generally not a good idea for you to simply agree on a value without professional guidance -- one of you will get shortchanged if your valuation is off. A real estate agent can do a comparative market analysis, which shows you the sale prices of similar homes in the area. Hiring an appraiser is the more expensive option, however, professional appraisals are typically more accurate than CMAs. After determining your home's value, deduct lien amounts, such as mortgages; the difference is your equity. Most divorce courts divide equity evenly between spouses, but if you negotiate a settlement, you can divide it differently.

Buying a spouse out of a mortgage removes their future liability for the loan and, therefore, involves a refinance. A cash out refinance pays off your existing mortgage debt plus other liens and generates the proceeds to cover the exiting spouse's share of equity. For example, if your home's value is $300,000 and you must pay off a $250,000 mortgage, the equity is $50,000. If you owe your spouse half of the equity, or $25,000, you'd have to refinance a loan amount of $275,000. Your share of the equity remains in the home and your spouse gets $25,000 after closing.

If you don't have enough equity to buy out your spouse via a cash out refinance, you can pay an exiting spouse with marital assets other than the home's equity. You need to have enough marital assets to offset your spouse's share of the equity. For example, if your spouse's share of the home's equity is $25,000 and he has $50,000 in an individual retirement account to which you're entitled to half, your spouse can keep the entire IRA in lieu of cashing out on your home. You can then refinance only to remove your spouse's responsibility for the mortgage.

If you refinance your mortgage, but do nothing about the title deed, you'll be solely responsible for the new loan and still share ownership with your spouse. Your spouse only relinquishes ownership when he signs a quitclaim deed or grant deed, giving up his interest in the home. One of these documents can be prepared by the attorney or escrow holder handling your refinance transaction and should be signed before the refinance closes.