How To Calculate a Divorce Buyout

One option that divorcing couples frequently explore is the divorce house buyout, where one spouse buys the other’s share of the property allowing one to keep the house while the other receives compensation. 

Divorce can be a tumultuous and emotionally charged experience, often marked by complicated decisions regarding the division of marital assets. Among these assets, the family home will often take centre stage. When couples decide to part ways, determining what happens to the shared residence can be a challenging and pivotal aspect of the divorce process. 

But, how do you calculate a divorce house buyout? In this article we will jump into the house buyout process, how to calculate buying out another party and what alternatives there are available. 

Check out this page if you are looking for more general information about selling a property before or after a divorce.

Table of Contents:

• What is a divorce house buyout?

• How does a divorce house buyout work?

• How do you calculate a divorce house buyout?

• What alternative to divorce mortgage buyouts are there?
  

What is a divorce house buyout?

A divorce house buyout is the process of one party buying out the other in terms of a divorcing/divorced couple. Usually, the property within the buyout will be one that was bought during the marriage, and there is a joint mortgage in place.

This could be done by one party offering the value of the home or the remaining share of the mortgage to the other party, and if agreed, then the other party would relinquish ownership of the property. 

The key aspects of a divorce buyout and steps to consider are:

• Determining the property's value

• Calculating & agreeing the buyout amount

• Legal transfer of ownership

• Sorting out the refinancing of the mortgage

Why is a house buyout necessary during a divorce?

Well, it's not necessary; you may choose to sell the property, but likewise, a buyout is often an ideal solution.

It's often preferred as it mitigates the need to go through the process of selling and finding a new place to live. It's particularly common when a family is involved, as it can offer a greater level of stability and continuity during a tough time.

Can I buy a partner out before divorce?

Yes, you can buy your partner out of a property before divorce, this is usually referred to as a pre-divorce house buyout. As long as the relationship is on stable terms and there is a mutual agreement between the two parties then it can be the better, less messy option. 

We would recommend still seeking legal advice if you go down this route. You may need them to draft a formal agreement, and you will of course, need to let the mortgage company know and they will be required to do their own affordability checks.

What happens if you have a joint mortgage and split up?

If you have a joint mortgage after divorce then all parties that are on the mortgage agreement are still liable to make mortgage payments - regardless of whether you live in the property or not. 

Mortgage specialists The Mortgage Hut have a great article that tackles this specific question in detail.

How does a divorce house buyout work?

In order for a divorce house buyout to work, the buying party will need to make an offer to the other party, which will need to be accepted. Typically, divorce house buyouts are financed by remortgaging or a product transfer, like moving from one mortgage company to another. 

When the buying party buys the other party out of the jointly owned mortgage, they will then need to take ownership of the property via a transfer of equity. 

If the house is under a tenants in common agreement, then the buying party will split the rest of the mortgage amongst the remaining tenants.

What are the first steps to take when buying a partner out from a mortgage?

Buying a partner out from a mortgage involves a few preparation steps to ensure that the process remains smooth and legally sound during the transition of ownership.

How long does it take to buy someone out of a house?

The process of a divorce house buyout will usually take around 4-6 weeks, depending on the speed of the mortgage provider, any legal complications and how clear the communication is between all parties, although it can take longer if you don't agree on how much of the equity in the property belongs to you according to SAM Conveyancing. 

If you need to pay out the other party with cash, then raising enough funds to buy them out may take some time, so it's essential that once you get the ball rolling, you have the funds available to purchase the property as soon as possible.

How do you calculate a divorce house buyout?

To accurately calculate how much a divorce house buyout will be, you’ll need to establish how much equity you and the other parties have within the property, which can be done through four steps:

1. Property valuation: You can initiate the process by obtaining a property valuation. You can choose from several options, including a mortgage house valuation from your mortgage lender (usually incurring a small fee), a valuation from an estate agent (usually free of charge) or a comprehensive RICS survey (costing between £200-£1000). 

2. Mortgage details: Contact your current mortgage provider to secure a redemption certificate. This certificate will disclose the remaining balance on the mortgage and any applicable early repayment charges (ERC).

3. Equity calculation: Subtract any outstanding mortgage balance as obtained from the redemption certificate, from the property valuation amount. This difference represents the total equity in the property.

4. Share division: divide the equity value determined in the equity calculation by the number of property owners to ascertain the individual share of equity for each party.

However, it's crucial to note that the division of the house’s equity and assets will ultimately be governed by the financial settlement reached during your divorce proceedings. This settlement will prescribe how the house’s ownership is appointed, including the final allocation of equity shares. 

If you are seeking a calculator to assist with your divorce house buyout calculations, consider utilising the remortgage calculator available on onlinemortgageadvisor.co.uk. 

This resource provides insights into your new loan-to-value ratio and repayments following the remortgaging process, aiding you in making informed financial decisions during this critical period. 

What alternative to divorce mortgage buyouts are there?

As the buying party, if you are unable to secure a mortgage then there are alternatives during a divorce mortgage buyout:

Can equity release be used to help divide assets?

Equity release plans can be used instead of divorce mortgage buyout to buy the other party out of the property. The most common option during a divorce is for the buying party to take out a lifetime mortgage. Which would mean they secure a loan against the property that doesn’t need to be paid until they pass away or move into long-time care. 

What is the best way to sell the home and share the profit?

If you are looking to move on from a divorce, then there are more options than a divorce house buyout. Selling the property and sharing the profit could be an advantageous approach as all parties involved can move forward in a positive manner. 

In most divorce settlements, the equity within the property will be split 50/50 unless there is a prenup agreement in place. This means that when you sell the property, it will be split equally between the parties instead of you or the other party gaining more profit, or putting extra money into the property. 

One of the best ways to sell your house fast and release the funds within it, is to sell with us! We are a leading UK cash buyer with over 50 years of combined experience in the industry, who believe that selling a property shouldn't be time consuming or complicated. 

We are all about making selling easy, and our customer care team has been rated excellent by thousands of previous customers. 

Whatever your divorce circumstances are, we will buy your house, in any condition for cash and we’ll do it fast. We’ll even cover all costs (including conveyancing fees) and complete in a timescale that suits you — we can buy your house in as little as seven days.