How a Spouse Buyout of the Marital Home Works in New Jersey

In a spouse buyout, one of you keeps the marital home and pays the other for their share of the equity. The steps are a value you both accept, the equity math, a way to pay (often a refinance in the keeping spouse's name), and then a deed and a loan payoff, all set out in your settlement agreement or court order.

I'm Dennis Mark Interdonato with The Dennis Mark Group. I'm a Master CDRE® and a former New Jersey home builder and remodeler, so I look at a buyout from two sides: what the house would bring on the market, and what it'll cost to keep. Here's how a buyout works in New Jersey, in plain terms.

How is a spouse buyout calculated?

Start with equity: the home's current value minus every loan against it, including any home equity line. Then apply whatever split your agreement or the court sets. Here's an example with made-up numbers:

• Agreed value: $500,000
• First mortgage balance: $220,000
• Home equity line balance: $30,000
• Equity: $250,000
• If the agreement gives each spouse half, the departing spouse's share is $125,000

Your agreement may adjust that figure for other items, and those adjustments are for your attorneys or mediator. New Jersey doesn't set a fixed split. If you can't agree, a judge weighs the factors in N.J.S.A. 2A:34-23.1, including the present value of the property and the debts each spouse carries.

Where does the value come from?

In a buyout, the value is the deal. On an even split, every $10,000 in value moves the check by $5,000, so both of you have to trust the number. A neutral market analysis from recent comparable sales is the starting point, and your attorneys may want a formal appraisal from a licensed appraiser. If a refinance pays for the buyout, the lender will look at value through its own underwriting too. Read appraisal vs. market analysis for how the two differ.

Condition is where buyout numbers drift. A roof near the end of its life or an aging heating system changes what a buyer would pay. I read a house the way a buyer's inspector will, so both of you see those items before the number is set, not after.

How does the spouse keeping the house pay for it?

A refinance

A new loan in the keeping spouse's name pays off the old mortgage and funds the buyout. Fannie Mae's Selling Guide has a category for this kind of refinance, one that buys out a co-owner's interest, and it names a divorce settlement as an example. Its conditions include joint ownership for at least 12 months before the new loan funds, a written agreement signed by all parties stating the terms of the transfer, and a borrower who qualifies under its guidelines (Fannie Mae Selling Guide B2-1.3-02). Loan programs differ, so the keeping spouse should talk to a mortgage professional before the agreement is signed. The lender looks at that spouse's income, credit and debt-to-income ratio alone. Ask for a Loan Estimate early too: the CFPB says it shows the estimated interest rate, monthly payment and total closing costs for the loan (CFPB), and those costs belong in the buyout math.

A trade against other assets

Sometimes the departing spouse takes more of another asset instead of cash for the house. Whether that works, and how it's valued, is for your attorneys, your mediator and your tax professional.

Taking over the existing loan

Only if the loan allows it and the lender approves. The CFPB notes that most loans don't allow assumptions, and page 4 of your Closing Disclosure says whether yours does (CFPB). VA loans committed on or after March 1, 1988 can be assumed when the loan holder or VA approves the person taking it over (VA Form 26-8978).

Is there tax or a transfer fee on a buyout?

Federal rules generally don't recognize a gain or loss on a transfer of property to a spouse, or to a former spouse when the transfer is incident to the divorce. The spouse who receives the home takes over the same tax basis. A transfer counts as incident to the divorce if it happens within one year after the marriage ends, or if it's related to the end of the marriage, which the IRS ties to a transfer under the divorce or separation instrument within six years (IRS Publication 504).

In New Jersey, the realty transfer fee doesn't apply to a deed between spouses, or to a deed recorded within 90 days after a divorce decree that ends the marriage between the two people on the deed (NJ Division of Taxation). Timing matters, so confirm it with your attorney before the deed is signed.

What happens to the deed and the old mortgage?

Two separate things have to happen. The departing spouse signs a deed transferring their interest, and it's recorded with the county clerk. And the old mortgage gets paid off, or the lender releases the departing spouse from it. Taking a name off the title doesn't take it off the mortgage (CFPB). The order those steps happen in is something your attorneys should set. Read how to get your name off the mortgage after a divorce for the lender side.

When does a buyout make sense, and when does selling?

There's no universal answer, but the numbers usually point one way once they're on paper.

Look past the day the deed is signed, too. Keeping the house can mean a bigger monthly bill on one income, less room to borrow for anything else, and its own capital gains questions when it's sold later. Your lender and tax professional should weigh in on those before you sign. Whichever way you're leaning, both of you get the same market value and the same read on condition from me.

What mistakes do couples make with buyouts?

• Using an online estimate as the value. It never walked through the house.
• Forgetting a loan. A home equity line counts against the equity too.
• Signing before checking the refinance. If the keeping spouse can't qualify, the deal falls apart. Talk to a lender first.
• Ignoring the cost of keeping it. Property taxes, insurance and upkeep stop being split two ways.
• Agreeing on a number before agreeing on the method. Decide first whether it's a market analysis, an appraisal or both, so neither of you can reject the result because of how it was reached.
• Letting attachment set the plan. Wanting to keep the house isn't the same as being able to carry it.
• Using a stale number. A value from a year ago isn't today's value. Get it close to when you sign.

Frequently Asked Questions

Do we need an appraisal for a buyout?

Not always, but the number is the whole deal, so your attorneys may want one. A neutral market analysis from recent sales is a good first step, and a refinance lender will have its own say on value.

Can the departing spouse stay on the mortgage?

That's between your attorneys and the lender, but know the risk. A divorce decree can assign the debt to one spouse, and the lender can still collect from anyone named as a borrower on the loan (CFPB).

Is there a New Jersey transfer fee on the buyout deed?

The realty transfer fee doesn't apply to a deed between spouses, or to one recorded within 90 days after a divorce decree that ends the marriage between the two of you (NJ Division of Taxation). Your attorney confirms the timing.

What if the spouse keeping the house can't qualify for a refinance?

Then the usual options are a sale, different terms, or a later sale under your agreement. Read how to sell a house during a divorce, step by step.

This is general information, not legal, tax or lending advice. Your attorney, mediator, tax professional or lender has the final word on your own situation.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. He's a former New Jersey home builder and residential remodeler. See how he handles home sales during a divorce.

Keep reading

• The Divorce Guide
• Get a neutral starting value for your home
• How the marital home is valued in a divorce
• Have a question this didn't answer? Send it to Dennis Mark.