How to Split Real Estate in a Divorce

It’s never simple. You’ve lived in the house for years, memories attached to every corner. But now, in the middle of a divorce, that home—the very place that was once your refuge—has become a battleground. The stakes are high: not just financially, but emotionally too. But here's the kicker: when you're in the thick of it, the worst thing you can do is rush into decisions without thinking ahead.

What happens to the house when both parties want it?

Let's start with the most contentious scenario. You've both put in years of investment—financial and emotional—into your property. So, who gets to keep it? Courts have several ways of dealing with this, and it depends largely on the laws in your state or country.

In community property states, assets acquired during the marriage are typically split 50/50. This means that the house, no matter whose name is on the deed, is generally considered joint property. In contrast, equitable distribution states work differently: assets are divided in a way the court deems “fair,” though not necessarily equally. Here, the division of real estate often takes into account factors like the financial situation of each spouse, contributions made during the marriage, and the needs of any children.

For many divorcing couples, the first step is to determine whether one spouse will keep the house or whether it will be sold. If one partner wants to stay in the home, they’ll usually have to “buy out” the other spouse’s interest, which can be a complicated process. Refinancing the mortgage, for instance, may be necessary. And this isn't easy; if the buying spouse can’t afford to shoulder the new mortgage on their own, selling might be the only option.

What if selling the house is the only answer?

Let’s break it down: if both parties agree to sell the house and split the proceeds, the process is straightforward on paper—but still emotionally taxing. First, the home needs to be valued by a qualified appraiser to establish a fair market price. Then, any remaining mortgage balance, closing costs, and realtor fees are deducted from the sale price, and what’s left gets split.

But even this “clean” solution comes with challenges. For example, what if the real estate market is in a slump? If the house doesn’t sell quickly, you and your soon-to-be ex may be stuck co-owning the property for months—sometimes even longer. Not ideal when you're trying to move on.

Here’s where it gets interesting: some couples choose to retain joint ownership of the property even after divorce, typically for the sake of the children. This allows the kids to stay in the family home, while the parents alternate living there. It’s a solution that works in theory but requires a high degree of cooperation—something that’s often in short supply during a divorce.

What if there’s a mortgage?

Oh, the mortgage. It’s often the elephant in the room. Most couples share a mortgage, meaning both parties are legally responsible for the debt. When divorce enters the picture, the mortgage debt doesn’t magically disappear, nor can one spouse easily remove their name from the loan.

If one spouse plans to keep the house, refinancing is the typical route. This involves taking out a new mortgage in the sole name of the spouse who’s staying in the home. But here’s the tricky part: qualifying for a new mortgage with only one income can be difficult, especially if both spouses’ incomes were required to qualify for the original loan. Failing to refinance means that both spouses will remain legally tied to the mortgage, even if one of them is no longer living in the house.

On the flip side, if the house is sold, the proceeds from the sale will ideally be enough to pay off the remaining mortgage balance. If not, the couple will need to cover the shortfall from other assets—something that can complicate the divorce settlement.

The prenuptial agreement wildcard.

This is the part nobody really likes to think about, but if you had a prenuptial agreement in place, it could greatly impact how your real estate is divided. Prenups often outline how property will be split in the event of a divorce, which can either simplify things or add another layer of complexity. If one spouse entered the marriage with the house already in their name, the prenup might stipulate that it remains theirs in the event of a split. However, if both parties contributed financially to the mortgage or property upkeep, even a prenup might not guarantee a clear-cut solution.

A look at real-life cases:

Let’s analyze a few scenarios:

1. Case A: A couple living in California, a community property state, jointly purchased a home during their marriage. When they divorced, the court ordered the home to be sold, with the proceeds split 50/50. The home had appreciated in value significantly since it was purchased, so both spouses walked away with substantial funds—enough to start new lives independently.

2. Case B: A couple in New York, an equitable distribution state, owned a home with a large mortgage. The wife wanted to keep the home but couldn’t qualify for refinancing on her own. The court allowed her to keep the home but ordered her to pay the husband his share of the home’s equity over time, while also taking over full responsibility for the mortgage payments.

3. Case C: A divorcing couple with young children decided to keep the family home in joint ownership, with each spouse alternating weeks living there to minimize disruption for the kids. Though unconventional, this arrangement allowed the children to remain in a stable environment.

Factors that influence the division:

Several variables influence how real estate is split in a divorce, including:

• Length of the marriage: Longer marriages often involve more complex property division, especially if the couple has accumulated significant assets over time.
• Financial contributions: Courts may look at each spouse’s financial contributions to the mortgage, maintenance, and improvements to the property.
• Primary caregiver status: If one spouse has primary custody of the children, they may be more likely to be awarded the family home.
• Market conditions: The state of the real estate market can also play a role. In a down market, selling the home might not be a financially viable option.

Emotional vs. practical considerations.

Dividing real estate in a divorce is as much about emotional decisions as it is about financial ones. It’s easy to get attached to a home, but staying in a property you can’t afford—or that keeps you tied to your ex—can hinder your ability to move on. It’s important to balance your emotional attachment with practical considerations: Can you afford the mortgage and upkeep on your own? Will holding onto the home limit your financial freedom?

Real estate is one of the most challenging assets to divide during a divorce, but with the right approach, you can come out of it with a settlement that works for both parties.