How to Sell a House and Distribute Funds in a Divorce

By Rob Jennings J.D.

men shaking hands behind a sold signboard

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Divorce is rarely easy, but the process can become even more complicated when you and your soon-to-be-ex spouse own a home together and owe money on it. Frequently, title to the house is in both parties' names, as is the mortgage. If neither one of you can afford to buy out the other side by refinancing the loan, it may be necessary to sell the home in order to pay off the mortgage and distribute the equity.

Decide who will stay in the residence pending sale. In an amicable separation, you may remain on sufficiently civil terms to where you can both stay in the house. Depending upon your unique circumstances, however, this may not be an option for you. Sit down with the other side and decide who will live in the house -- and bear responsibility for keeping it presentable -- while going through the sale process.

Agree upon an arrangement for taking care of the mortgage, taxes, insurance and other home expenses during the sale process. Remember that the house is a joint asset and the loan is a joint debt. The house has to be sold and the loan paid if you both hope to receive any equity. As such, the spouse who moves out first should consider bearing at least some of the financial burden.

Figure out how you want to sell the home. Listing with a real estate agent has many advantages; an agent has the time to aggressively market and show your home and advise you on the strength or weakness of a potential buyer's offer. Agents generally charge a fee calculated as a percentage of the sale price; however, you and your spouse may decide to attempt to sell the home yourselves. Whichever way you choose, agree on this important point before either of you moves out.

Agree upon how you and your spouse will share any equity remaining after the sale or split any responsibility for bringing cash to the closing. In order to preserve any agreement you're able to reach on this point, consider reducing it to writing and signing it in front of a notary. Getting along at the start of the sale process does not necessarily mean you'll still be on the same page six months later.

List the home for sale. If your house is old or you've lived in it for a long time, you may need to invest substantial time and money in repairs and upgrades in order to make it competitive in the real estate market in your area.

Collect your share of the equity -- or pay your share of the deficiency between the sale price and the mortgage balance -- at closing. Even if you sell the home without a real estate agent and handled all other aspects of your separation on your own, actually closing the purchase transaction is something you should not do without the assistance of an attorney. If your buyer is borrowing money to buy your house, the bank will probably require it.