What Happens in a Divorce When the House Is Paid Off?

By Heather Frances J.D.

During divorce, spouses can agree on how to divide their marital property or allow the court to divide it for them according to state law. Some assets, like cars, tend to be simple to divide, but a major marital asset like a house without a mortgage can be trickier to distribute since it cannot be easily divided in half or offset by other assets.

Marital Property

Under most circumstances, courts can only divide marital property, which is property acquired during the marriage that is not the separate property of either spouse. Though laws vary by state, separate property typically includes assets acquired by gift, inheritance or before marriage. Whether a home is mortgaged or not, if it is marital property, its equity is considered a marital asset and divisible by the divorce court. Though the court must apportion even a small amount of equity between the spouses, a paid-off house may have quite a bit of equity to be split.

Community Property Vs. Equitable Distribution

States follow either community property or equitable distribution laws when dividing property between spouses. In community property states, marital property may be split 50-50 under state law, but equitable distribution states require judges to consider a list of factors, such as the length of the marriage and the contributions made by each spouse, before deciding how to split a couple’s property. In an equitable distribution state, the spouse not retaining the home might be entitled to more or less than a 50 percent share of the equity.

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Keeping the House

The house does not have to be sold simply because the owners divorce. When one spouse keeps the house, the court can award a higher proportion of other assets to the other spouse, balancing out the value in equity received by the spouse who keeps the home. The spouse who keeps the house could also buy out the other spouse’s share in the property, taking out a mortgage if he is unable to pay cash for his spouse’s share.

Selling the House

A divorce court can order the spouses to sell the home, particularly if they cannot reach agreement about it. For example, the spouses may be forced to sell the house if there aren't enough other assets to balance out the home's equity and neither spouse is able to obtain a mortgage. Spouses might be unable to obtain a mortgage because they cannot financially handle a mortgage on their post-divorce income or because they do not have sufficient credit to qualify. If the court orders the house sold, it likely will issue an order describing the way the proceeds should be split between the spouses once the sale is final.

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Divorce & an Underwater Mortgage That a Spouse Refuses to Sell


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What Happens in an Equity Buyout in a Divorce?

Particularly after a lengthy marriage, it's likely that spouses have built up some equity in their assets. With every mortgage or loan payment, they own more and more of the property, and the lender owns less. This equity is a marital asset, and when a couple divorces, each spouse is entitled to a portion of its value. An equity buyout occurs when one spouse keeps the asset and, in exchange, compensates the other for her share of the equity.

Texas Divorce Laws on House Disputes

Because Texas is a community property state, courts in Texas generally divide property equally following a divorce. However, the situation is more complicated when it comes to a house. Which spouse gets the house is largely dependent on when the home was purchased as well as where the mortgage payments are coming from. In some cases, the spouse who does not get the house will instead receive a greater portion of the remaining marital property, while the spouse with the house may receive more of the marital debt.

Jewelry in a Divorce

Jewelry, especially wedding and engagement rings, can be important symbols of a marriage as well as valuable assets, so it’s no surprise that many spouses fight over them in a divorce. Generally, engagement and wedding rings are not divisible in a divorce, but other jewelry and gifts given during a marriage may be considered marital property that can be divided by a divorce court. However, laws vary among states.

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