To buy out a house in a divorce, you pay your spouse for their share of the home’s equity and refinance the joint mortgage into your name alone. The equity share comes from a professional appraisal minus the mortgage balance, divided according to your state’s property rules. The refinance has to qualify on your income by itself, and the whole sequence usually runs 45 to 90 days from signed agreement to recorded deed.
Figuring Out What You Owe
Start with a professional appraisal. It’s the most reliable way to establish fair market value, and your lender will require one anyway. Appraisal fees for a standard single-family home generally run between $575 and $1,300. If you and your spouse disagree on the result, a common fix is for each side to hire their own appraiser and split the difference.
The equity math is simple: appraised value minus remaining mortgage balance. A home worth $500,000 with a $300,000 mortgage has $200,000 in equity.
How that equity gets divided depends on where you live. Nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) follow community property rules, where marital assets are generally split 50/50. In the other 41 states, courts use equitable distribution, meaning the split should be fair but doesn’t have to be equal. Income, earning capacity, and contributions to the marriage can all shift the percentage. On that $200,000 of equity, a straight 50/50 split means you owe your spouse $100,000. Under equitable distribution, a court might land on 60/40 or some other ratio.
Settlement negotiations often reshape the number further. One spouse might accept a smaller buyout in exchange for a larger share of retirement accounts, or the price might be reduced to account for needed repairs. The buyout figure in your final agreement doesn’t have to match any formula exactly. It just has to be something both parties sign off on, or a judge orders.
How to Pay the Buyout
Cash-Out Refinance
The most common funding path is a cash-out refinance. You take out a new mortgage big enough to pay off the existing joint loan and generate cash equal to your spouse’s equity share. The old mortgage disappears, your spouse comes off the loan, and one closing handles both.
The catch is qualification. You now have to carry the entire mortgage on your income alone. Lenders will scrutinize your debt-to-income ratio, credit score, and employment history as if you were applying for the first time. Refinance closing costs typically run 2 to 6 percent of the new loan amount, so on a $400,000 refinance expect $8,000 to $24,000 in fees.
Fannie Mae gives divorce buyouts a meaningful break. Under its Selling Guide, a refinance to buy out a co-owner’s interest counts as a “limited cash-out refinance” rather than a standard cash-out refinance, as long as both spouses jointly owned the property for at least 12 months before the new loan closes.1Fannie Mae. Limited Cash-Out Refinance Transactions The practical difference is big: limited cash-out refinances allow loan-to-value ratios up to 97 percent on a primary residence, while standard cash-out refinances are generally capped at 80 percent. That higher ceiling can be the difference between qualifying and not, especially when most of your net worth is in the house. To use this classification, both parties must sign a written agreement detailing the transfer and how the proceeds will be used.
Other Ways to Fund It
Refinancing isn’t the only option. Several alternatives work alone or in combination:
- Asset offset. Instead of writing a check, you trade other marital assets of equivalent value. A common example is giving up a portion of a 401(k) or brokerage account in exchange for keeping the house.
- QDRO distribution. A Qualified Domestic Relations Order lets you split a retirement account as part of the divorce. Distributions paid directly to a former spouse under a QDRO are exempt from the 10 percent early withdrawal penalty that normally applies before age 59½. The recipient still owes ordinary income tax on the money unless they roll it into another retirement account.2Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
- Separate savings. Non-marital funds (an inheritance, premarital savings, or gifts from family) can fund the buyout directly without touching joint assets.
- Personal loan or home equity loan. A second loan can bridge a gap, though interest rates will be higher than a first mortgage and the added payment further strains your budget.
Keeping the Existing Mortgage
If you locked in a low rate a few years ago, refinancing at today’s rates can feel like setting money on fire. Mortgage assumption lets you take over the existing loan at its original rate, balance, and schedule.
Conventional mortgages almost always contain a due-on-sale clause that lets the lender demand full repayment when ownership changes hands. Federal law overrides that clause in divorce. The Garn-St. Germain Act prohibits lenders from calling the loan due when a property transfer results from a divorce decree, legal separation agreement, or related property settlement.3Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions So you can transfer the deed to one spouse without the lender forcing a payoff.
There’s a critical distinction here that trips people up. Garn-St. Germain protects the title transfer. It does not remove the departing spouse from the mortgage. For that, you have to go through a formal assumption process with the lender, who will evaluate whether you can carry the loan alone. If approved, the lender issues a release of liability to your spouse, formally ending their obligation. Government-backed loans (FHA, VA, USDA) are generally assumable by design, though you still have to meet that program’s qualification standards. Conventional loans are harder. Many lenders simply don’t offer formal assumption programs, which leaves the departing spouse’s name on the loan even though they no longer own the property.
The Deed-vs.-Mortgage Trap
This is where more divorces go sideways than anywhere else in the buyout process. A deed transfers ownership. A mortgage is a separate contract with a lender. Signing a deed to give up your interest in the property does absolutely nothing to remove your name from the mortgage.
If your former spouse stops paying three years from now, the lender can and will come after you. Late payments wreck your credit. In a worst case, foreclosure sits on your credit report for seven years.
Your divorce decree might say your ex is responsible for the mortgage. That’s binding between the two of you, and you could sue them for violating the agreement, but it means nothing to the lender. The bank wasn’t a party to your divorce and will pursue whoever signed the original note.
The only reliable ways to sever your mortgage obligation are:
- Refinance. The keeping spouse takes out a new loan in their name only, paying off the joint mortgage entirely.
- Formal assumption with release of liability. The lender evaluates the keeping spouse and, if approved, issues a written release removing you from the loan.
- Sale of the property. The mortgage gets paid off from the proceeds.
If you’re the departing spouse, protect yourself in the settlement agreement. Give the keeping spouse a specific window (90 to 180 days is typical) to refinance or assume the loan. If they miss the deadline, the agreement should require the home to be listed for sale. An indemnification clause adds another layer by giving you the right to sue for damages if your ex defaults on a mortgage that was supposed to be their responsibility. Neither protection is as clean as getting your name off the loan, but both beat walking away with nothing but a deed and a hope.
The Documents That Make It Official
Three documents do the heavy lifting.
The marital settlement agreement is the master contract for the divorce. It needs to spell out the buyout amount, the payment deadline, who pays closing costs, and the consequences if the keeping spouse can’t refinance on time. Every other document flows from this one, so vague language here creates problems everywhere else.
The deed transfers the departing spouse’s ownership interest. Two types are common. A quitclaim deed hands over whatever interest the signing spouse has, with no guarantees about the state of title. An interspousal transfer deed does the same thing but is designed specifically for spousal transfers and, in some jurisdictions, prevents the county from reassessing property taxes based on the change. Either deed needs the full legal names of both spouses, the property’s legal description (found on the original deed or county property records), and notarization.
The recorded deed is what makes the transfer official in the eyes of the world. After signing and notarization, the deed has to be filed with the county recorder’s office or equivalent agency in your jurisdiction. Recording fees are generally modest. Until the deed is recorded, public records still show both spouses as owners, which can create problems with future buyers, lenders, and title companies.
Taxes Now and When You Eventually Sell
The Buyout Itself Isn’t Taxable
Under federal tax law, property transfers between spouses, or between former spouses when the transfer is part of the divorce, are not taxable events. No capital gains, no gift tax, no income tax at the time of the buyout.4Office of the Law Revision Counsel. 26 U.S. Code 1041 – Transfers of Property Between Spouses or Incident to Divorce The buyout payment is treated as a property settlement, not income. To qualify, the transfer must happen within one year of the divorce or be “related to the cessation of the marriage.”
You Inherit the Original Cost Basis
Here’s where the tax picture gets less generous. If you keep the home, you inherit the original cost basis: what both spouses originally paid, plus any qualifying improvements.4Office of the Law Revision Counsel. 26 U.S. Code 1041 – Transfers of Property Between Spouses or Incident to Divorce The buyout payment doesn’t increase your basis. If you and your ex bought the house for $250,000 and you pay $100,000 to buy out their equity share, your basis is still $250,000, not $350,000. That matters when you eventually sell.
The Exclusion Shrinks When You File Single
When you sell a primary residence, you can exclude up to $250,000 in capital gains from tax as a single filer, or $500,000 for a married couple filing jointly. You generally need to have owned and lived in the home for at least two of the five years before the sale.5Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
Divorce creates a couple of helpful rules. If the home was transferred to you from your spouse as part of the divorce, you can count your ex’s ownership time toward the two-year ownership test.5Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence And if your ex moves out but a divorce or separation instrument grants them use of the home, the IRS treats the home as though both of you still live there for purposes of the use requirement.6Internal Revenue Service. Publication 523 (2025) – Selling Your Home
The shift worth planning around: as a single filer, your exclusion drops to $250,000. If the house has appreciated significantly, the combination of a carried-over basis and a halved exclusion can produce a real tax bill when you sell. Run the numbers before deciding to keep the house instead of selling jointly while you can still claim the full married exclusion.
When a Buyout Isn’t Possible
Sometimes the math doesn’t work. The keeping spouse can’t qualify for a refinance on one income, neither party has enough assets for an offset, and assumption isn’t available. The typical outcome is selling the home and splitting the proceeds. Courts prefer voluntary agreements, but a judge can order the sale if spouses can’t reach one. In particularly contentious cases, either party can file a partition action asking the court to force a sale and divide the proceeds.
If the home is underwater, meaning the mortgage balance exceeds the current value, options narrow. There’s no equity to divide, so the question becomes who absorbs the negative equity. Courts may assign the full shortfall to the spouse keeping the home, split it between both parties, or offset it against other debts in the settlement. If neither spouse wants to keep the property, a short sale (where the lender accepts less than the full mortgage balance) or renting the home until the market recovers may be the least painful path.
Realistic Timeline
Once you both agree on terms, the sequence is predictable. Sign the marital settlement agreement locking in the buyout price, deadline, and contingencies. Apply for the refinance or start the assumption process. At closing, the lender pays off the old joint mortgage and sends the buyout payment to the departing spouse, who signs the deed transferring ownership. File that signed, notarized deed with the county recorder.
Realistically, the whole sequence takes 45 to 90 days from signed agreement to recorded deed, with the refinance approval being the bottleneck. Build extra time into your settlement deadlines. Lender delays, appraisal disputes, and document corrections are routine, not exceptional.