Dividing Assets in Divorce: Real Property

Navigating the division of real property during a divorce is rarely simple, especially when it involves the primary marital residence, or weekend homes where the family has shared invaluable memories and experiences. Whether your home holds financial or emotional value, understanding your options early can help you make informed decisions that align with your goals.

Generally, there are three potential outcomes when it comes to dividing real property in a divorce.

1.     The Buyout

The first potential outcome is the buyout, where one spouse purchases the other’s interest in the property, allowing the buying spouse to become the sole owner of the property. However, unless a right of first refusal is explicitly stated in a prior executed agreement (such as a prenuptial or postnuptial agreement), neither spouse is automatically entitled to buy out the other.

When children are involved, the right of first refusal in a buyout scenario is often given to the primary custodial parent. The reason for this is to support the continuity of the child’s lifestyle. Generally, the goal is to minimize disruption and maintain their quality of life as much as possible, including preserving stability in their living arrangements.

If children are not a primary factor, then the issue becomes financial affordability. Specifically, it is a question of which party can afford to purchase the other’s equity and refinance the mortgage.

Buyout Price

Ideally, the parties can agree on a price for the buyout. When the parties cannot agree, they may obtain an appraisal to determine the property’s fair market value. The buyout price will generally be one-half of the equity in the property. The equity is calculated as the fair market value minus any mortgages, lines of credit, or other encumbrances, plus any credits to the selling spouse (see below for further detail).

In the event the buying party can’t immediately afford to refinance or pay the equity, the parties can agree that the selling party will remain on the mortgage for a temporary period post-divorce, or that the buyout can be in installments over time. Failing agreement to those types of terms can result in the home having to be sold to a third party.  

2.     Sale To Third Party

If there is no provision or agreement for a buyout, the last resort for dividing the property is for it to be sold to a third party and for the net proceeds to be divided accordingly.

In a third-party sale, parties can agree to a broker and agree to certain metrics and milestones for adjusting the sales price in the event the home does not immediately sell.

For instance, if no bona fide offer is received within 30 days of listing, the parties may agree to reduce the list price by 5%. If no offer is received after 60 days, an additional reduction could apply. Other contingencies may include further price adjustments, enhanced marketing efforts, or reassessment of the listing strategy in response to market feedback.

These provisions are typically detailed in a written agreement to ensure clarity and avoid disputes during the sale process.

Dividing Net Proceeds

Once the home is sold, the net proceeds are generally divided equally, after satisfaction of the mortgage, taxes and fees. Sometimes, one or both parties are entitled to separate property credits before dividing the equity.

For example, if one party used separate funds acquired before the marriage to make the down payment or to pay for substantial improvements to the property, that party may be entitled to a credit reflecting their contribution. Whether a credit applies depends on the specific facts, documentation, and circumstances in each instance.

3.     Co-ownership (Post-Divorce)

The final possible outcome must be handled delicately. There are a variety of reasons divorced spouses may want to co-own real property together, whether it be for the children’s best interests or financial reasons. Co-owning a home after divorce is generally appropriate for healthy co-parenting couples or when selling immediately would cause financial loss.

A written agreement must be made with a detailed plan on the conditions of this co-ownership. This agreement will outline each party’s responsibilities for mortgage payments, taxes, maintenance, and set clear terms for how decisions will be made and when the property will eventually be sold.

This arrangement can offer stability for children, particularly when it allows them to remain in the same home, school district, and community. It also preserves property value in a weak real estate market and gives both parties time to prepare for a future sale or transition. When handled effectively, co-ownership can minimize disruption and provide financial flexibility during a period of change.

Co-ownership comes with risks. During this time, both parties can remain financially responsible. If one spouse stops making payments, both credit scores can suffer, thus affecting the parties’ financial freedom. However, a well drafted settlement agreement should include a fail-safe plan for selling the property, ensuring that neither party is left stuck in an unwanted arrangement if cooperation breaks down.

If you're considering divorce and want to better understand what might happen to your real property, we’re here to guide you every step of the way.

Email us at consultation@artesezandri.com to schedule a call.