Divorce and the Family Home — Sell, Buy Out, or Keep?

The family home is usually the largest single asset in a divorce — and the most emotionally charged. Many people fight to keep it for stability, especially when children are involved. But keeping the house isn't always the smart financial move. It depends on whether you can afford the mortgage alone, the equity math, and your long-term financial picture.

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Three Options for the Family Home

Option	How It Works	Best When
Sell and split proceeds	Both spouses sell, divide equity	Clean break; neither can afford it alone
One spouse buys out the other	Refinance in one name, pay the other their equity share	One spouse can qualify for the mortgage alone
Co-own temporarily	Both remain on title/mortgage until a trigger event	Children need stability; market timing

Option 1: Sell and Split

The cleanest option financially. You sell the home, pay off the mortgage, and divide the remaining equity.

Example:

Item	Amount
Home value	$450,000
Mortgage balance	$280,000
Selling costs (6% agent + closing)	$32,000
Net equity	$138,000
Each spouse receives	$69,000

Pros: Clean break. No ongoing financial ties. Both spouses get liquid cash for fresh starts.

Cons: Transaction costs eat 6–10% of the home's value. Disrupts children's housing. If the market is down, you may sell at a loss.

Tax note: Up to $250,000 in capital gains ($500,000 if married filing jointly for the tax year of sale) is excluded from taxes under the primary residence exemption. This exemption requires living in the home for 2 of the last 5 years.

Option 2: Buyout

One spouse keeps the home and compensates the other for their equity share. This usually requires refinancing the mortgage into one name.

Example buyout math:

Item	Amount
Home value	$450,000
Mortgage balance	$280,000
Total equity	$170,000
Departing spouse's share (50%)	$85,000
New mortgage needed	$365,000 ($280K existing + $85K buyout)

The keeping spouse must qualify for a $365,000 mortgage on their income alone. At 7% interest, that's roughly $2,430/month for principal and interest — plus taxes, insurance, and maintenance.

Can you afford it? Lenders typically require your housing costs to be below 28% of gross income. A $365,000 mortgage at 7% with taxes and insurance might total $3,200/month, requiring a gross income of at least $137,000/year.

Option 3: Co-Own Temporarily

Some divorcing couples agree to co-own the home for a set period — typically until the youngest child finishes high school, or for 3–5 years.

How it typically works:

One spouse lives in the home (usually the custodial parent)
Both remain on the mortgage
The living spouse pays the mortgage (or it's factored into support)
A trigger event (child turning 18, remarriage, set date) forces a sale or buyout

Risks:

Both spouses remain financially tied through the mortgage
The non-living spouse can't use their borrowing power for a new home
Maintenance disputes are common
If the living spouse misses payments, both credit scores suffer

The "Can I Afford It?" Checklist

Before fighting to keep the house, answer honestly:

Question	Red Flag
Can I qualify for the mortgage alone?	Debt-to-income above 43%
Can I cover mortgage + taxes + insurance + maintenance?	Total exceeds 35% of take-home pay
Do I have savings for repairs?	Less than $10,000 in emergency fund
Am I giving up retirement assets to keep the house?	Trading $200K in 401(k) for house equity
Will I be "house rich, cash poor"?	Most net worth tied up in illiquid home equity

If you answered "red flag" to two or more, selling may be the financially sound choice — even if it's emotionally harder.

For the complete financial planning approach, see Financial Planning for Divorce — Checklist. For understanding how your state handles property, read How Assets Are Divided in Divorce. And for the full cost picture beyond the home, check Hidden Costs of Divorce.