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Divorce is often an emotionally charged and financially complex process. When jointly owned property is involved, especially the marital home, navigating the division can be even more challenging. One strategic and increasingly popular solution is a Spousal Buyout Home Equity Line of Credit (HELOC). This financial tool allows one spouse to “buy out” the other’s share of the home, preserving ownership while meeting settlement requirements.
What Is a Spousal Buyout HELOC?
A Spousal Buyout HELOC is a type of home equity line of credit used during a divorce to allow one spouse to refinance or take equity out of the shared home in order to compensate the other spouse for their portion of the equity.
Unlike a traditional HELOC used for general purposes, a buyout HELOC has a specific use case: to fund a divorce-related property settlement. It’s commonly used in situations where:
- One spouse wants to retain ownership of the marital home
- There’s significant equity in the property
- A smooth transition is preferred over selling the property
Structuring the Buyout Line for a Smooth Settlement
A well-structured spousal buyout HELOC involves both legal and financial considerations. Here’s a step-by-step look at how to do it right:
1. Determine Home Equity
Start with a professional home appraisal. The current market value, minus any outstanding mortgage, gives the equity value. The equity is then typically split according to the divorce settlement (commonly 50/50, though it varies).
Example:
- Home Value: $500,000
- Mortgage Balance: $300,000
- Equity: $200,000
- Spouse A owes Spouse B: $100,000 (assuming equal division)
2. Apply for the HELOC in One Spouse’s Name
Only the retaining spouse should apply for the HELOC, as they will be the sole property owner after the buyout. This means they must qualify based on their individual income, credit, and debt-to-income ratio.
Pro Tip: Work with a mortgage lender experienced in divorce lending to streamline the approval process.
3. Disburse Funds for the Buyout
Once approved, the HELOC funds are drawn to pay the buyout amount to the departing spouse. This is typically completed alongside the property deed transfer, ensuring all terms are executed simultaneously.
4. Update Title and Mortgage Documentation
Legal documents must reflect the new sole owner. This includes:
- Removing the departing spouse from the property deed
- Paying off or refinancing the current mortgage, if required
Benefits of Using a Buyout HELOC
- Preserve the family home: Especially important when children are involved
- Faster than refinancing: Quicker settlement process
- Tax advantages: In some cases, interest on the HELOC may be tax-deductible (consult your tax advisor)
- Avoids selling the home: Helps retain stability and equity growth
Risks and Considerations
- Rate fluctuations: HELOCs often have variable interest rates
- Overborrowing: Temptation to use funds for non-essential expenses
- Legal implications: Ensure the buyout is clearly spelled out in the divorce decree
Frequently Asked Questions (FAQ)
Can both spouses be on a HELOC during a divorce?
No. A spousal buyout HELOC should only be in the name of the spouse retaining the home to avoid future legal or financial complications.
Is a buyout HELOC better than refinancing?
It depends. A HELOC may be faster and offer more flexibility, but refinancing could lock in a lower interest rate. Always compare both options based on current rates and your long-term goals.
Will the HELOC affect my credit score?
Yes. Like any line of credit, a HELOC appears on your credit report. Managing it responsibly can help build your credit post-divorce.
Take the Next Ste
- Talk to a divorce mortgage specialist today to explore your buyout options.
- Get a free home equity assessment to determine how much you could qualify for.
- Download our Divorce Mortgage Readiness Checklist to stay on track throughout your settlement.
Read Next
By understanding how a Spousal Buyout HELOC works and how to structure it correctly, divorcing couples can move forward with confidence and clarity—preserving financial stability and reducing unnecessary conflict.
Unlock Your Home Equity with Figure
- Approval in 5 minutes. Funding in as few as 5 days
- Borrow $20K-$400K
- Consolidate debt or finance home projects
- Fastest way to turn home equity into cash
- 100% online application
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
