How to Buy Out a Spouse’s Share of a House in California Divorce

Often the biggest asset in a California divorce is the home. During a California divorce, community property is identified and that property is owned by the parties in some manner. If the family home is entirely community property, spouses will sell the home and divide the net proceeds, do a buyout so that one spouse owns the property and the other receives compensation, or they can also continue to own the property together in some instances.

Exploring All Options in Divorce Mediation to Avoid Home Buyout Mistakes

When we mediate divorces for our clients, all options are explored and explained so that the couple can choose the best path for them and the entire family. We understand that every family’s situation is unique, and a one-size-fits-all approach simply doesn’t work. When we mediate divorces for our clients and help them reach property division agreements outside of court, we ensure that all options are thoroughly explored and clearly explained. Whether it’s deciding on a house buyout, selling the property, or finding creative solutions to dividing assets and debts, our role is to guide you toward an outcome that feels fair and beneficial for everyone involved.

We take the time to walk you through the implications of each option—financially, legally, and emotionally—so that you and your spouse can make informed decisions together. Our goal is to help you identify the best path forward for you and your family, minimizing conflict and creating a plan that supports long-term success.

Schedule a free consultation today to discuss how Scott Levin can help. 

Steps to Buying Out a Spouse’s Share of the House

When negotiating a buyout of the home, the first step requires that the parties agree on the value to be paid to the spouse who will no longer own the home. This value is for that spouse’s interest in the property.

Of course the family home is often the largest asset owned by the parties and there are certainly issues that can arise which complicate the division of the home and valuing the home in a California divorce in different ways. The valuation of the home along with the valuation of other assets, and determining whether they are in part or whole community or separate property, can be a complicated endeavor.

Assessing the Value of Your Home: Calculating the Buyout Amount

The fair market value is not required if the parties will be selling the home because in this case, once sold, the proceeds will be split based on whatever the agreement for dividing the proceeds is. Or if the parties will continue to co-own the home, again no FMV must be agreed on because they will decide the division of value in the future when they sell or do a buyout then.

Determine the Fair Market Value (FMV):

The buyout amount requires determining the fair market value of the house. The fair market value can be agreed upon by the parties by looking up online, having a realtor provide a market analysis or getting an official appraisal from a licensed home appraisal company.

Scott Levin’s extensive network of trusted referral sources ensures clients have access to exceptional services, including reliable appraisals like Chris Circuit Valuations, a San Diego based appraiser who has delivered outstanding results.

 

Subtract Loans From Fair Market Value

Once you agree on a fair market value, that value is reduced by the balance of the mortgage loan. And so the outstanding loan balance will be subtracted to calculate the net equity. If you agree that you each own the home equally, this means that the buyout could be set at 50% of the net equity.

The parties may further agree that other debts will be accounted for to be subtracted against the fair market value. For example, the parties may agree that the buying spouse will retain 100% of joint credit card debt and in doing so, the amount of the buyout is reduced by 50% of the joint credit card debt. There may also be a HELOC loan that would be subtracted from the agreed upon value or perhaps there are other agreements made by the parties that would reduce the amount of the buyout. This is all to be negotiated and discussed during your mediation negotiations.

Adjust Buyout By Costs of Future Real Estate Agent Fees?

Once you have a net equity figure and agreed upon percentage of ownership, the question becomes whether this net equity should be further reduced by future sales costs which the owner will incur in the future if and when they decide to sell the home. Although with the buyout no real estate agent is being hired to sell the house, the buying spouse can negotiate to have the buyout reduced by an amount equivalent to half of the future realtor fees. The bought out spouse would essentially agree to prepay his or her portion of the costs by having the amount of the buyout reduced by these future costs of sale.

The buying spouse will incur 6%-8% in sales costs, as well as potential tax liabilities, upon eventual sale. Some parties negotiate a reduction for these future fees, while others do not; this is a negotiable point. The less likely a sale is, the less likely the bought out spouse is willing to participate in the costs.

How Do You Determine Each Spouse’s Share of the Equity in Your Home?

Once the total net equity with all adjustments is in agreement, the next step is to determine each spouse’s share of the equity. If you each own the home equally and are 50-50 partners, then of course the buyout will be 50% of the net equity you’ve agreed upon. However, 50-50 ownership may not be your situation as there are many instances by which the home is not simply equally owned.

Some of the circumstances that impact how you will split the equity include:

• Is the home in part considered separate property rather than community property? You need to determine if there is a separate property ownership right that would give one party greater ownership rights. For example if a home is owned before marriage, the Moore/Marsden formula for the San Diego divorce will be needed to determine the percentage of equity ownership the bought out party should receive.
• Are there reimbursements due to for separate property contributions for the down payment or payment of the mortgage?  California Code 2640 states that any reimbursements shall be due without interest and so these would be assigned to one party when determining the equity amount due for the buyout.

As a CDFA, Scott Levin mediates divorce with financial understanding to help calculate and account for the fair and equitable division of the home. As Scott discusses in the video below, he is convinced that his financial literacy is tremendously impactful in the successful mediation of financially complex divorce property settlements.  Joining Scott are expert California divorce financial planner Rana Davidson who helps by sharing potential issues that arise when exploring the division of a family house during a California divorce

Assignment of Buyout Value

After determining the buyout figure, the next step is assigning this value to bought out spouse. As CDFA Tanya Aure discusses with Scott Levin in this video, the assignment of the value can be done with a cash payment or arranged through an unequal division of assets. This division will form a key part of the discussions and decisions in the mediation meetings with Scott’s clients.

Mortgage Loan Options for House Buyout

The mortgage loan presents a potential obstacle if the mortgage is a joint obligation. Key considerations include whether the bought out spouse must be removed from the loan immediately or whether they may remain on it for a specified period. Removing the bought out spouse from the loan will require one of the following:

• Paying off the loan in full,
• Refinancing the loan at current interest rates, or
• Loan assumption to remove the bought out spouse if allowable.

Loan assumptions allow the retention of the original mortgage rate while removing one party, but not all loans are assumable. It is essential to confirm whether the loan is assumable and, if so, to submit the necessary application after finalizing a settlement agreement.

Timeline and Process for Retitling Property

The parties must agree on a timeline for retitling the property to remove bought out spouse’s rights.  This timeline should be clearly documented in the Marital Settlement Agreement (MSA).

1. Agreement on Retitling Timeline
   • If Titled Directly: If the property is titled individually as community property with right of survivorship, both parties must agree on when the title will be changed to reflect the sole ownership of the remaining spouse. The timeline for transferring ownership (via a quitclaim deed or similar document) is typically agreed upon in the Marital Settlement Agreement (MSA).
   • If Titled in a Trust: The timeline must also address the revocation of the existing trust and the creation of a new trust, adding complexity and potential delays to the process.
2. Determination of Payment
   • Retitling generally occurs after the bought-out spouse has received their agreed-upon compensation and thus payment for the bought-out spouses’ interest typically precedes the execution of the transfer docs.
   • Payment can be made:
     • Upon signing the MSA but before final judgment of dissolution.
     • After the entry of judgment and finalization of the divorce.
3. Execution of Retitling – Revocation of Trust
   • If Titled Directly: Upon receipt of payment, the bought-out spouse must sign all necessary documents to transfer their interest voluntarily. This includes signing a quitclaim deed or equivalent document that relinquishes their rights to the property.
   • If Titled in a Trust: The current trust must be formally revoked. This step involves:
     • Agreement by all trustees and beneficiaries (if applicable).
     • Execution of a revocation document in accordance with the terms of the trust and California law.
     • Planned analysis in consultation with an estate attorney to ensure the plan is aligned with additional estate planning considerations.
     • Scott Levin’s network includes highly skilled estate planning attorneys who provide personalized and comprehensive guidance, including for example trust attorney Daniel Weiner and estate planning lawyer Rod Hatley.
4. Creation of a New Trust
   • If Titled Directly: Ownership transfer is final once the deed is executed and recorded.
   • If Titled in a Trust: A new trust must be created to reflect the updated ownership structure. Steps include:
     • Drafting the trust with the assistance of an estate planning attorney.
     • Listing the sole remaining spouse as the property’s new owner or trustee.
     • Recording the updated trust docs as required by California law.
5. Obligations of the Bought-Out Spouse
   • If Titled Directly: The bought-out spouse will agree to sign without delay the necessary quitclaim deed to transfer their interest voluntarily.
   • If Titled in a Trust: The bought out spouse agrees to the trust’s revocation by signing all necessary documents transferring their rights and interest in the property and to participate in any required steps in a timely manner.
6. Clear Agreement in the MSA
   • The MSA or court orders should specify:
     • If Titled Directly:  The MSA will clearly lay out the steps and timeline for completing payment and transfer of values as well as the deadline for completing the tasks to retitle and complete the deed transfer.
     • If Titled in a Trust: The MSA will include the steps for trust revocation, obligations for creating a new trust, and deadlines for each stage and clearly obligate each party to cooperate in this process.
7. Final Documentation and Filing
   • The retitling documents must be submitted to the relevant county recorder’s office. If titled directly, ownership transfer is final once the deed is executed and recorded. If titled in a new trust, the new trust must be created to reflect the updated ownership structure.

Why Use San Diego Divorce Mediation to Reach Well Thought Out House Buyout Agreement

If you’re navigating a divorce and want to explore all your options in a supportive, solution-focused environment, our San Diego Divorce Mediation & Family Law team can help create a smart plan and path forward for dividing property with affordable mediation.  Contact Scott Levin to schedule a free virtual mediation consultation or call 858-255-1321.