Nolo's Essential Guide to Divorce - Emily Doskow [110]
A woman who owned a large, valuable home with her husband said, "When we split up, we agreed he would buy out my share of the house. But then he said the most he'd pay was $5,000 less than what I should get using even the lowest appraisal we'd gotten. He just sort of stood there and said, 'So sue me.' I was so angry. I called my friend and said I just couldn't accept this final mistreatment-I was going to insist on putting the house on the market.
"My friend gave me some great advice. She said that given the value of the house, $5,000 wasn't that huge an amount-even $10,000 really wasn't, in the scheme of things. She asked me whether I really wanted to have to stay in close communication with my husband right now about getting the house ready for sale and dealing with the agent, the offers, and all that. She said that once the brokers' fees and expenses of sale were thrown in the mix I could end up losing more than the $5,000 I was so mad about.
"Basically, my friend said I should take what he was offering and get on with my life. It was the best advice I ever got. I took the money and we were done. After a while I wasn't even mad anymore-making the decision not to engage in the house-selling project with the person who was the object of my righteous anger also meant I didn't spend more time thinking about the injustice of it all."
Once you've agreed on the fair market value for purposes of the buyout, you may decide to adjust it, for any of a variety of reasons. Here are a few common adjustments:
Broker's fee. Although you won't be hiring a broker, the buying spouse sometimes negotiates to have an amount equivalent to half of the standard broker's fee deducted from the agreed value. This is because the buying spouse may incur broker's fees later when the house is finally sold. Some states don't allow this, though, requiring that the buyer pay all the closing costs, including the entire broker's fee, whenever the property is sold. Your lawyer or mediator should be able to tell you what the rules are in your state. If you're doing your divorce yourselves, this would be a good time to look for a piece of advice from an attorney or knowledgeable real estate agent. For now, just know that if you foresee selling the property in the near future, you may want to consider continuing to hold it jointly until then, to avoid losing out when the closing costs come clue.
Deferred maintenance. If there's work on the house that you put off during the marriage that needs to be done soon, the buying spouse can try to persuade the selling spouse to knock the buyout price down somewhat. Likewise, if the selling spouse owes the buying spouse money to even out the property division, lowering the sale price is one way to take care of that debt.
Spousal support considerations. There's also the possibility that the selling spouse might agree to a lower purchase price to avoid paying spousal support. For example, if the wife is buying out the husband's share of the house so that she can stay there with the kids, she might agree to forgo spousal support if the husband will sell his interest for a much lower-than-market-value price. Be careful with this, however-it may negate the tax advantages that sometimes come with spousal support. (See Chapter 11.)
Refinancing issues. In most cases, a buyout goes hand in hand with a refinancing of the mortgage loan on the house. Usually, the buying spouse applies for a new mortgage loan in that spouse's name alone. The buying spouse takes out a big enough loan to pay off the previous loan and pay the selling spouse what's owed for the buyout.
For example, you and your spouse might have a mortgage loan with a principal balance of $150,000, and an equal amount of equity ($150,000) in your house. If you are buying out your spouse's half of the equity, you would need a loan for at least $225,000. You'd pay $150,000 to pay off the original loan, then pay $75,000 cash (half of the amount of equity) to your spouse, to become the sole owner of the house. The transaction would proceed just like a