Can one spouse keep the house after a divorce in Colorado, and how does a buyout work?

Yes. One spouse can keep the house if the divorce settlement or the court awards it to them and they can pay the other spouse's share of the equity. That's usually done by refinancing into one name, using other assets, or, for some loans, assuming the existing mortgage with the lender's approval. The other spouse should come off the mortgage, not just the deed. And qualifying for the loan is only part of the question: it's worth making sure the home fits your budget on one income before you commit.

How a buyout works

The basic math is the home's value, minus what's owed on it, divided the way your settlement says.

Hypothetical example: a home is worth $500,000 and the mortgage balance is $300,000, so there's $200,000 in equity. If the settlement splits that equity evenly, the spouse keeping the home owes the other spouse $100,000. Your actual split may differ, and couples sometimes negotiate other adjustments, such as the selling costs the departing spouse avoids. Those are decisions for your attorneys.

A few steps make the number credible to both sides:

• Agree on the value. Many couples use a neutral appraisal, or each get one and agree on how to settle the difference.
• Get a current payoff statement from the mortgage servicer, not just the balance on a monthly statement.
• Put it in writing. The buyout terms belong in your separation agreement or decree.

Ways to pay the buyout

• Refinance into one name. The spouse keeping the home takes out a new loan large enough to pay off the old mortgage and pay the other spouse's share. Under Fannie Mae's rules, a refinance to buy out a co-owner can be treated as a limited cash-out refinance if the home was jointly owned for at least 12 months and the terms are in a signed written agreement. The spouse keeping the home can't take any of the proceeds. Your lender will confirm which rules apply to your loan.
• Trade other assets. Instead of cash, the departing spouse may receive a larger share of savings, retirement accounts, or other property. Dividing retirement accounts often requires a court order of its own, so this is attorney territory.
• Assume the existing loan. Some loans, including VA and FHA loans, can be assumed with the lender's approval, which can keep a low interest rate. The lender has to approve the spouse keeping the home and release the other spouse from liability. You'd still need to pay the other spouse's equity some other way.
• A combination. Many buyouts use some of each.

Removing a spouse from the mortgage, not just the deed

This is where many buyouts go wrong. A quitclaim deed takes a spouse off the title, but it doesn't take them off the loan. The divorce decree can say who's responsible for the payments, but it doesn't bind the lender.

Until the loan is refinanced, assumed with a release of liability, or paid off, both spouses remain liable, and a late payment shows up on both credit reports. If you're the spouse leaving, ask your attorney to build a deadline for the refinance into the agreement, and what happens if it doesn't happen.

Qualifying on one income

The lender will look at your income, debts, credit, and the new payment as if you're buying the home on your own. A few points specific to divorce:

• Support you receive can count as income. Under Fannie Mae's rules, alimony or child support can be used to qualify if it's documented in a decree or separation agreement, you've received it fully and on time for the most recent six months, and it's expected to continue for at least three years.
• Support you pay counts as a debt. It reduces how much you can borrow.
• Timing. A lender may need a signed separation agreement or the final decree before it can approve the loan. Ask early.

Qualifying isn't the same as affording it

Whether to keep the house is your decision, not mine. But just because you qualify for the loan doesn't mean you should take it on. I'd hope anyone keeping the home has done the cash flow and the budget: the mortgage, property taxes, insurance, HOA dues or metro district costs, utilities, and repairs, on one income, with money set aside for the unexpected.

There's a lot of emotion in this, and that's understandable. No one wants to have to move, especially from a place you love, under these circumstances. That's exactly why it's worth running the numbers before you commit, so the decision you make now still works a few years from now.

VA loans and military families

Many Colorado Springs homes were bought with VA loans, which adds a few questions:

• If the veteran keeps the home, they can refinance or keep the loan in their own name if they qualify.
• If the non-veteran spouse keeps the home, they may be able to assume the VA loan with the lender's approval and a release of liability for the veteran. But the veteran's VA entitlement generally stays tied to that loan until it's paid off, unless another eligible veteran substitutes their entitlement. That can limit the veteran's next VA purchase.

Bring the loan details to a VA-experienced lender and your attorney before you settle on a plan. How VA loan assumption works explains the entitlement question.

What's specific to keeping the house in Colorado Springs

• The deed. Once the transfer is final, a deed from one spouse to the other is recorded with the El Paso County Clerk and Recorder. A title company or attorney can prepare it so it matches the decree.
• Accounts in one name. Update the homeowners insurance, the property tax mailing address with the El Paso County Assessor, and utilities in your name only. If the home is in a metro district or HOA, make sure their notices reach you.
• The court. Divorces in Colorado Springs are handled by the 4th Judicial District Court for El Paso County, and its Self-Help Center can explain the procedures if you don't have an attorney. What happens to the house in a Colorado Springs divorce covers the court order on property and the other options.

How to decide

• If you can qualify alone and the full monthly cost fits your budget on one income, keeping the home can work.
• If you qualify but the budget is tight, consider whether selling and starting over somewhere smaller would leave you on firmer ground.
• If you can't qualify alone, talk with a lender about what would need to change, and with your attorney about other options, including selling.
• If you're the spouse leaving, make sure the agreement requires you to come off the mortgage by a set date.

What could change the answer

• How the settlement or the court divides the equity.
• Whether the spouse keeping the home can qualify alone, including support income.
• The type of loan, especially an assumable VA or FHA loan.
• Current interest rates compared with the rate on the existing loan.
• The full monthly cost of the home on one income.

When to talk with a professional

Talk with a family law attorney about how the home and its equity are divided, and about deadlines for refinancing. Talk with a lender early about qualifying on one income and whether a refinance or assumption fits. Ask a CPA about the tax side of the transfer and a future sale. And talk with a real estate professional about the home's value and what a sale would look like, so you're comparing real options.

Sources

• Fannie Mae Selling Guide, B2-1.3-02, Limited Cash-Out Refinance Transactions (buying out a co-owner): https://selling-guide.fanniemae.com/sel/b2-1.3-02/limited-cash-out-refinance-transactions
• Fannie Mae Selling Guide, B3-3.4-02, Alimony, Child Support, Equalization Payments, or Separate Maintenance: https://selling-guide.fanniemae.com/sel/b3-3.4-02/alimony-child-support-equalization-payments-or-separate-maintenance
• C.R.S. § 14-10-113 (disposition of property): https://colorado.public.law/statutes/crs_14-10-113
• U.S. Department of Veterans Affairs, VA Home Loan Guaranty: https://www.va.gov/housing-assistance/home-loans/
• Colorado Judicial Branch, El Paso County Self-Help Center: https://www.coloradojudicial.gov/courts/trial-courts/el-paso-county/self-help-center