Two Options For Buying Your Ex-Spouse's Share In The Home When You'Re Broke
When you and your spouse decide to divorce, one of the top things you must decide is what to do with the home. If you want to keep the house, you'll have to pay your spouse his or her financial share. This is fine if you have money in the bank to write a check or the credit needed to refinance the home, but what do you do if you're broke? Here are two options for handling this situation.
Exchange for Other Assets or Benefits
Possibly the best option in this situation is to give up other assets that equal the value of the person's interest in the home. If the home is worth $200,000 and your spouse's share is 50 percent of that amount, you would need to relinquish $100,000 worth of assets that you would normally be awarded by the court (e.g. part of a retirement fund). Alternatively, or in addition to that, you can give up some or all of your spousal support in exchange for your ex-spouse's interest in the home.
It's important to discuss these options with your attorney and a tax expert, as either could have long-term repercussions on your finances. For instance, if you choose to give up your rights to a portion of your ex's retirement funds, you will have to replace that money yourself. This may not be a problem for people who are young and have time to earn the required income, but it may be an issue for older people close to retirement age.
Whichever option you choose, make sure your divorce decree clearly states what the terms of the exchange are so there aren't any unpleasant surprises later on.
Make Payments Over Time
The other choice for buying out your ex-spouse is to make payments over time until you can afford to pay his or her share outright. There are two ways you can handle this option. You can continue paying the mortgage to the bank until you can refinance the home and pay your ex his or her share, or you can pay the mortgage plus a monthly payment to your spouse until you've paid him or her off completely.
This is a risky proposition to both you and your ex. You must be able to afford the payments on your own; otherwise, you risk losing the house if you fall behind on the mortgage. You also need to decide if the buyout will be based on the home's current value or its future one. If it's based on the home's future value, the amount it is worth may go up and you may end up having to pay more than you planned.
Knowing the home's value will be critical to negotiating either option. It's a good idea to consult with a real estate agent about determining how much the home is worth and its prospective future value. For more ideas on how to handle this issue, contact a realtor.