How Co-Ownership Works | Pros and Cons of Co-Ownership | How to Co-Own After a Divorce | Alternatives
It’s not unusual for couples to own a house together even after their divorce. In fact, it’s often the most practical solution, especially if there are children involved. Maintaining the same house can provide continuity in a time of big change.
But co-owning a house with your ex can be much like a break-up – complicated.
Generally, there are four ways to handle a home during and after a divorce:
- Sell the house and split the proceeds
- Buy the home from your ex by paying their share of equity – or vice versa
- Exchange the home with your ex for an equal asset – or vice versa
- Continue to co-own the house
In any case, making a decision about something as personal as a home can be extremely emotional.
Before you make any decision, it’s a good idea to get an appraisal and talk to a real estate agent about your property. Make sure you’re fully informed by finding out how much your home is worth — and how much you could make by selling it and splitting the profits.
Our friends at Clever Real Estate can match you with top agents in your area, so you can get a better understanding of your options after a divorce. If you do decide to sell or, if one spouse decides to buy out the other, a Clever partner agent can help you navigate the process and save you thousands in commission fees.
Clever pre-negotiates 1.5% agent listing fees (as opposed to the standard 3%) – the average customer saves $7,000 on their home sale. It’s a simple way to save amidst the mounting costs of divorce. Find local agents and save!
If you’re still considering co-ownership after divorce, here’s what you need to know.
How Does Co-Owning a House With Your Ex After a Divorce Work?
Co-owning a house after divorce means both of your names will remain on the deed and the mortgage.
You might consider this arrangement instead of selling for a variety of good reasons:
- You have children still living at home
- One spouse can’t afford to buy out the other right away
- You’re underwater on their mortgage
- You’re expecting the market to improve
Depending on what you decide, you may both continue living in the home or agree that one spouse will move out. You’ll also need to decide if you will share mortgage payments or if one party will take sole responsibility for them.
If you do decide to keep the property in both of your names, prepare yourself for the emotional stress that can come from co-owning a property after divorce. Co-ownership usually means continued interaction with your ex, which can make it hard to move on.
Keeping a property in both names can also complicate the divorce from a legal standpoint. To protect yourself, include all of the details of the arrangement in your divorce agreement and get it approved by the relevant court.
Pros and Cons of Co-Owning a House After Divorce
Co-owning a home with an ex can be complicated and emotionally taxing, but makes sense in certain situations.
| Pros 👍 | Cons 👎 |
|---|---|
| Grants more time for one spouse to buy out the other | May hurt your credit if you’re not able to make payments |
| Allows children to stay in the same house | Not financially feasible for some |
| May give you an opportunity to earn more on investment | Can be emotionally difficult |
| Requires tough accounting decisions | |
| May result in higher taxes |
Pros of Co-Owning a House After Divorce
You’ll Have More Time For One Spouse to Buy Out the Other
If one spouse wants to keep the house, they can buy out the other’s equity and become the sole owner. But the buyer needs cash on hand – in some cases, a lot of it. Continuing co-ownership for a period gives one spouse time to save before buying out the other. Note that the new owner will need to get a new mortgage in their name only.
Your Children Can Stay in the Same House
If you have young children and one spouse wants to stay in the family home, co-owning a house with your ex after a divorce could allow your children to stay in the same house and maintain some stability during and after the divorce.
You Could Earn More on Your Investment
If you haven’t owned your house long enough to make a profit on your sale, or if you expect the market to improve in the future, co-owning allows you to wait until there’s a better opportunity to sell. Or maybe you want to hold onto the house as a rental property that you can both draw passive income from.
Cons of Co-Owning a House After Divorce
It Could Hurt Your Credit
If your ex doesn’t make their portion of the mortgage payment, you’re on the hook. And if you can’t fill the gap and make your mortgage payments on time, both of your credit scores will suffer. If you’re worried about your or your ex’s ability to make payments, don’t take the risk of co-ownership.
| ⚠️ Caution: If you think there’s a chance your ex could file bankruptcy or be sued by a creditor, don’t co-own with them.
If this happens, their share of the home could be seized or it could force a sale, causing you to lose some or all of your equity. This is one of the biggest risks associated with co-ownership. |
It’s Not Always Financially Feasible
Continued co-ownership might require one spouse to pay their current mortgage as well as payments on a new mortgage or rental. For many people, double housing payments are out of reach. Not to mention, it can be difficult for some to qualify for a second mortgage with one already under their belt.
It Can Be Emotionally Difficult
Co-owning a house after divorce requires communication and cooperation, which can be difficult under high-stress circumstances. If you’re not able to communicate and work together, continuing to co-own may not be the best option.
You’ll Have to Make Tough Accounting Decisions
Co-ownership requires figuring out how to divide expenses that come with homeownership, such as:
- Mortgage payments
- Property taxes
- Homeowners insurance and private mortgage insurance (PMI), if applicable
- Utilities
- Maintenance and repairs
You’ll have to determine who gets to take the mortgage interest deduction. These decisions can be difficult, especially if you don’t have a good relationship with your ex.
You May Lose Out on a Special Tax Benefit
If you decide to continue co-owning a house with your ex, you might lose out on a special tax exemption.
IRS Section 1041gives divorced homeowners a pass on the typical capital gains tax – they don’t have to pay capital gains on their home sale if the home is sold within a year of the divorce. By comparison, homeowners must pay capital gains on their home sale proceeds unless they’ve lived in their home for two of the last five years.
So if you don’t sell the home within a year following your divorce, you won’t be eligible for the exemption.
But there is one exception – if you include plans in your settlement agreement to sell the house within six years of your divorce, you won’t have to pay any capital gains.
Tax law is nuanced, so we recommend working with a divorce attorney to understand all tax implications before you choose to co-own a house after divorce.
If you’re not ready to take on the complications and risks involved in co-owning a house after a divorce, get in touch with a realtor to explore your options for selling the home.
💰 How Much Is Your Home Worth?
Before listing your home, find out how it compares to others in your local market.
How to Continue Home Co-Ownership After a Divorce
If you decide to keep the family home after a divorce, there are a few key things you can do to smooth the process.
Most importantly, though, we recommend working with an experienced divorce attorney who can help you navigate the process. Our guidance is based on research and real estate best practices — it does not constitute legal advice.
1. Decide on Terms of Agreement
If you plan to co-own your home after divorce, decide on the terms of the agreement at the outset. Make sure to discuss things like:
- How long each person will live in the home
- Who will make the mortgage payments
- Who will be responsible for other expenses like upkeep and repairs
- Who will take the mortgage interest deduction
- What will happen if one of the co-owners dies
- What will happen when one person wants to sell the property
- Your timeline for a divorce buyout if one ex is working to buy the home from the other
- When you plan to sell the home, if applicable
2. Record All Terms in Your Marital Settlement Agreement
Record any relevant details about the treatment of your family home in your settlement agreement. A marital settlement agreement is a legally binding contract that covers all aspects of your divorce, including property division. This will provide clarity and protection for both of you in the event of a future dispute.
You might even consider attaching a co-ownership agreement form to serve as a written record of your agreement and for use in dispute resolution down the road.
While sample and template documents can be found online, we highly recommend working with an attorney to ensure the document is legally enforceable in your state.
Finally, get the agreement approved by the applicable court. In some cases, the court may require that you attend a hearing to discuss the terms of the agreement.
| 💡Remember: Divorce Laws Vary By State
Each state has its own laws and paperwork on divorce and settlements. Do your research on your state’s requirements and legal forms before you draft an agreement. Ultimately, it’s best to work with a local attorney. |
3. Get the Home Appraised
Even if you and your ex are keeping the home, get it appraised so you can determine the value of your interest in the property. This is also necessary if you’re buying out your spouse’s interest in the property.
Alternatives to Co-Owning a House After Divorce
If you decide not to keep the family home, you have options.
Before you decide, find out whether you live in a community property or equitable distribution state. These designations might help you decide which option is most beneficial to both you and your ex.
- Community property states: If you live in one of nine community property states, all of your marital assets are divided 50/50 and those you acquired before marriage are excluded. Community property states include:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
- Equitable distribution states: In equitable distribution states, parties can agree to how property is split. A judge distributes property if you and your ex-spouse are unable to agree.
The law around property distribution is nuanced and our guidance here doesn’t constitute legal advice. Consult with an attorney when making these decisions for you and your family.
Sell the Property
If you decide to sell the property, you’ll need to agree on how the proceeds will be divided. Once you reach an agreement, have the property appraised so that you can determine its fair market value.
We also recommend reaching out to a real estate agent to help decide on a competitive listing price. Working with an agent can streamline the process and help you sell faster, so you can get on with your life sooner.
Need to sell fast? Homes listed with a Clever partner agent sell 16% faster than the national average. Get connected to a Clever agent who can help you out.
Keep the Property and Buy Out Your Spouse’s Interest
If you decide to keep the property, you can buy out your spouse’s interest or vice versa.
Start by getting the property appraised to determine your equity in the home. Then negotiate a fair price for your spouse’s equity in the property. Once you reach an agreement, work with a real estate attorney to have the property transferred into your name only.
Give the Property to Your Spouse in Exchange for Another Asset
If you decide to give the property to your spouse, negotiate a fair tradeoff. For example, you may exchange the property for another asset, such as a retirement account or another piece of property.
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FAQs About Co-Owning a House After a Divorce
How do I buy out a house from a spouse?
Start by getting the property appraised to determine your equity in the home. Then negotiate a fair price for your spouse’s equity in the property. Once you reach an agreement, work with a real estate attorney to have the property transferred into your name only. Learn more about navigating a divorce buyout.
If you get a divorce, who gets the house?
If you get a divorce, you’ll have several options for dealing with your shared house: sell the house and split the proceeds; buy the home from your ex by paying their share of equity – or vice versa; exchange the home with your ex for an equal asset – or vice versa; or continue to co-own the house. Learn more about your options after a divorce.