One of the things that needs to be decided in a divorce is how you’re going to divide up what you own together, and one of the biggest assets that couples usually own is their home. There are several choices as to what happens to the house (or condo or co-op):
- You can sell the house and divide the proceeds.
- You can continue to own the house together, even if one person stays there.
- You can buy out your spouse’s portion.
- Your spouse can buy out your portion.
How do you decide who gets what?
Let’s say you sell the house to a third person, so you know the sale price. First, subtract the amount that’s owed on the mortgage, any transfer or capital gains taxes, and closing costs.
Then subtract the contributions each spouse might have made from separate property for the down payment.
The remaining part is your joint equity in the house. You decide how you will split it (usually 50/50, but not always).
Here is an example: Let’s say that Bonnie and Clyde own a house together that they sell for $500,000. They have a mortgage for $160,000, and the closing costs, taxes, etc. will be $40,000. Bonnie contributed $50,000 and Clyde contributed $100,000 when they purchased it.
Here is the math:
Equity = $500,000
Minus mortgage and closing costs ($200,000) = $300,000
Minus $50,000 to Bonnie, and $100,000 to Clyde = $150,000
Equity divided by 2 = $75,000 each
So Bonnie ends up with $125,000 (75,000 + 50,000) and
Clyde ends up with $175,000 (75,000 + 100,000)
Now, what if you are NOT selling to a third party, but one person wanted to buy out the other’s share? In the above example, Bonnie would have to come up with $175,000 to purchase Clyde’s share, or Clyde would have to come up with $125,000 to purchase Bonnie’s share.
Of course, real life often gives us a more complicated scenario. And notice that there are some things that are NOT included in the above example — such as money one partner laid out for household expenses other than the mortgage, or for non-monetary contributions to the home that increased its value. In that case, the division above may seem one-sided.
This is an excellent reason to choose mediation or collaborative law: to hand craft an agreement for your unique situation and to create something that is fair (and workable) for your family!
Joy S. Rosenthal, Esq.
Rosenthal Law & Mediation
225 Broadway, Suite 2605
New York, New York 10007
Phone : 212.532.4704