Convert to a rental property
Both spouses retain ownership and rent the home to a third party, splitting the rental income. Can make sense when the market is soft, neither spouse wants to sell at a loss right now, or the home generates strong rental income. Requires a formal property management agreement and ongoing cooperation between ex-spouses.
Property Settlement Note (PSN)
Instead of a lump-sum buyout, the staying spouse pays the departing spouse their equity share over time through a structured loan agreement. Can work when one spouse wants to keep the home but can't immediately refinance for the full buyout amount. Less common, more legally complex, and requires careful drafting in the divorce decree.
Deferred sale (court-ordered)
A judge may order the home kept intact and sold at a future date — most often to maintain stability for minor children. The sale date may be tied to a specific event like the youngest child finishing high school. Both spouses typically retain their equity share until the deferred sale occurs.
Mortgage assumption — keep the low rate
Instead of refinancing at today's higher rates, the spouse keeping the home takes over the existing mortgage — preserving the original interest rate, balance, and monthly payment. The departing spouse is released from liability. This can save hundreds of dollars per month when there is a large gap between the original rate and current market rates.
Who qualifies:
FHA, VA, and USDA loans are generally assumable. Most conventional loans are not — but the Garn-St. Germain Act provides an exception for divorce transfers. The assuming spouse must qualify independently with the lender based on their own income, credit, and debt-to-income ratio.
The equity problem:
Assumption changes who owes the loan — it does not provide cash. If equity must be paid to the departing spouse, that buyout has to be handled separately through cash, other assets, or a home equity line of credit. Assumption works cleanly only when no cash buyout is required, or when the departing spouse agrees to receive their equity share from other marital assets.
California note — AB 3100 / Civil Code § 2951: A 2024 California law will require conventional lenders to allow co-borrower assumptions in divorce — but only for loans originated on or after January 1, 2027. For divorces finalized in 2026, conventional loan assumptions still depend on individual lender approval and the Garn-St. Germain exception. Consult a Certified Divorce Lending Professional (CDLP) for guidance specific to your loan and lender.