They bought a home together. Now they’re parting ways. They could do a number of things with the deed to the home, depending on their situation.
Here, we walk through the most common options for separating co-owners.
First: Do the Co-Owners Own Equal Shares of the Title?
An essential question is who is entitled to what share of the property value. Check the deed to be clear on how the couple vested the title when they acquired the home.
In most states, co-owners who are both named on a deed have equal shares in the home, by default. That said, if a court is overseeing the allocation of property when the couple splits up, one of the co-owners who covered the costs of substantial improvements to the home may receive monetary compensation for that work.
Likewise, if one partner paid the lion’s share of upfront purchase costs — or took care of the mortgage or insurance, taxes, or other key expenses — can that partner claim fair compensation? These decisions will be approved by the court, considering all the facts presented by each of the parties. The co-owners can speed the process by writing down the value of contributions (of both money and work) that each of them have invested in the home.
Attempting to recover every dollar can add stress to an already challenging situation. It’s arguably better, and usually cheaper, to come to an imperfect compromise than to get bogged down in a legal tug-of-war between the parties.
☛ Some couples have vested their homeownership as tenants in common — as co-owners who might have unequal shares. Note the share percentages stated on the deed. Here, too, the way in which the couple divided up home expenses should also be accounted for, in their agreement to divide and distribute their home’s value.
When the Co-Owners Need to Sell to a Third Party
Sometimes a house that made sense for two won’t make sense for one. The co-owners must then agree to sell the property together.
☛ Co-owners must each consent to sell a property. If agreeing on this basic issue fails, the couple might need to request a court-ordered partition. A judge can calculate the interests of the co-owners, force a buyout between the parties, or order a sale to a third party and determine a fair distribution of the proceeds.
Many couples share home equity, and collaborate on debt payments and expenses. When they go their separate ways, they can divide the proceeds according to their share percentages and sweat equity. They need to hire an appraiser, decide how they’ll split the closing costs and taxes, and list the home.
Experienced real estate brokers, perhaps a concierge service, have everything it takes to plan and carry out the staging and showings. Once the home sells, the couple can distribute any sale profits between themselves, with an eye to fairness for both parties.
When One of the Co-Owners Wants to Stay in the Home
Sometimes, the co-owners will decide to sell the home, as we’ve mentioned above. In other cases, one of the owners wants to keep the home. Usually, this scenario is simplest and cheapest, as it skips many of the costs involved in putting the home on the market.
If the party keeping the home is concerned about claims or liens that the other person might have incurred, then it’s best to hire a title expert and buy title insurance.
The new deed shows sole ownership, in the name of the owner who keeps the home. Recording the new deed with the county recorder’s office is an essential step.
Often, the simplest way to proceed is for one of the parties to quitclaim their interest, leaving full ownership with the other person. Is one party selling their interest to the other? To agree on a well-informed price, here again, one or both parties should hire an experienced, local real estate appraiser.
☛ Conveying full homeownership to an ex is done every day by separating couples. At its most basic, it takes a quitclaim deed. Yet there are more issues to spot. Review the finer points of deeds and divorce, on Deeds.com.
What Happens With the Mortgage, If One Person Stays
Lenders do not usually want to leave the mortgage terms in place if one of the approved co-borrowers wishes to leave. In many cases the lender will not agree that the remaining party has the ability to take on a mortgage alone, if it was first issued on the basis of the couple’s combined financial profiles.
That said, FHA mortgages are assumable loans. In any case, the parties should speak to the mortgage servicer about one co-borrower possibly (a) assuming the mortgage as a sole borrower; or (b) obtaining modified loan terms to suit the new situation.
If the one who’s receiving the quitclaim deed may not carry on alone with the old mortgage, it’s time for a new mortgage. The party receiving sole ownership must refinance the home as a sole borrower, with the new loan matching the sole ownership stated on the new deed. Refinancing releases the party who is leaving the home from any future liability for the mortgage. That’s important!
Co-borrowers should always take time to speak with the mortgage company before creating the new deed. This way, a mortgage expert can tell the couple that, indeed, one remaining party is eligible for the necessary financing. However you might proceed with the mortgage, surprising the mortgage servicer is never helpful! It’s important to avoid triggering an acceleration of the mortgage due date.
If there is just no way for the one who wants the home to shoulder a mortgage alone, a home sale has to happen.
Finally, How to Head Off Future Disputes
When co-owners part ways, they can avert future questions by creating a written agreement stating their full understanding of how the property is being distributed. In a divorce case, the court issues this documentation in its decree.
Working with a broker, the parties might need to agree to open a temporary, jointly owned bank account. Using this account, they can appropriately accept and distribute the sale proceeds, based on the parties’ written agreement.
As you can see, a legal separation that produces a new deed takes patience and sound guidance to manage. State law controls every part of the process. And no two couples have the same set of facts.
And this is why we point out that no website can tell readers everything they need to know, or provide case-specific guidance. This article cannot substitute for a personal an attorney-client relationship. Questions about your own financial or legal circumstances? We offer this article to help readers prepare for discussions with their professionals. To know that they’re correctly transferring their real estate ownership, and to avoid future legal liability, owners should meet with a real estate lawyer in the same state as the home.
Supporting References
Deeds.com: Taking a Co-Borrower Off a Mortgage – Three Ways (Mar. 2, 2022).
Deeds.com: Owning Property in Unequal Shares, as Tenants in Common (Jul. 16, 2020).
And as linked.
Photo credits: Tirachard Kumtanom and RODNAE Productions, via Pexels.