The family home is often the most valuable asset a couple owns.
If there is significant equity in the home, dividing that equity can be tricky. When things get tricky, creativity can be key to success.
This article outlines some of the lesser-known, and more creative, ways to divide home equity in a divorce.
Simple Buy Out
Typically, when there is equity in the home, that home and its equity are awarded to one spouse in the divorce. 
The other spouse is then compensated by receiving other assets like bank accounts, investing accounts, or retirement accounts.
Sometimes there is so much equity, or so few other assets, that this arrangement simply won’t work.
What then?
Real Property in Divorce: Should I Keep the House?
There are a handful of options to consider.
Sell The House Now
It’s common for a couple to agree that the home should be sold, and the proceeds of the sale be divided between them.
This solution works well if both spouses are willing to sell, the house is in good condition to sell, and the local real estate market will allow for a quick sale at a fair price.
But what if one or all those conditions are missing?
Sell The House Later
If the problem is either a depressed local real estate market or a temporary lack of willingness to sell on the part of one or both spouses, then the spouses can agree to sell the property later. 
A common example is wanting to stay in the home to allow children to finish school before moving to a new home and a new school district.
The spouses might agree on a deadline by which the property must be sold and agree on how the proceeds of that sale will be split. They may also agree to continue to co-own the home until the agreed upon sale happens.
But what if one party needs, or just wants, the cash from their portion of the home equity sooner?
Equity Buyout Loan
An Equity Buyout Loan may work if one spouse wants to remain in the home, but there are not enough other assets to buy out the equity of the other spouse.
This can happen in cases where the home is the most valuable asset in the estate.
What makes an Equity Buyout Loan distinct, is that the borrower may borrow up to 90% of the home’s value because the loan is pursuant to a divorce. Typically, loan-to-value on re-finance loans is capped at 80%.[1]
Let’s say the home is worth $500,000 and has a mortgage balance of $100,000 remaining.
That makes the equity worth $400,000.
If the wife wants to remain in the home, she’ll need to come up with $200,000 to buy out her soon-to-be-ex-husband’s share of the equity.
If there aren’t other assets that can be awarded to the husband, she may need to access some of that equity through an Equity Buyout Loan.
In our example, the wife could obtain an Equity Buyout Loan of $300,000.
That’s $100,000 to pay off the existing mortgage and $200,000 cash to buy out her soon-to-be-ex-husband.
But there are cases where this solution isn’t a fit.
If the party staying in the home can’t qualify for a loan, or higher interest rates would make the new loan unaffordable, an alternative must be found.
Property Settlement Note
In this context, a Property Settlement Note (PSN) is a loan agreement between the spouse keeping the family home and the spouse who is owed compensation for equity in the home. 
It allows the spouse who is keeping the home to buy out the other spouse’s equity over time.
A PSN is one of the least used tools for a variety of reasons.
To start with, they aren’t a well-known option.
Second, they add a layer of complexity to the drafting of a divorce decree.
And third, using a PSN can leave one party open to enforceability issues.[2]
But sometimes a PSN is the right tool for the job. Because the parties can negotiate the elements of the PSN, the note can be quite flexible.
Elements that need to be agreed on include the length (or term) of the note, the rate of interest, the type of payments to be made[3], and the option to pay off the note early without penalty.
The term could be short (e.g. five years) or long (e.g. 30 years). It might include a rate of interest[4] or no interest at all.
Payments might be interest only for a time, or they could include principal and interest from the start.
Assume that in our previous example an Equity Buyout Loan wasn’t possible.
The parties could agree that wife will buy out husband’s equity using a PSN.
The PSNs principal would be $200,000[5] payable over 15 years with an interest rate of 5.375%[6].
That means the wife would be responsible for sending her ex-husband a check in the amount of $1,620.93 each month for 180 months.
They could also agree that the wife may pay off the remaining principal at any time before the loan term is up.
If the wife is expected to have limited cash flow for a time, they may agree that she will make interest only payments during that time and then begin making principal and interest payments later.
It’s important to make the language in your decree very specific when using a PSN.
You will need to provide your attorney with an amortization schedule[7]and make sure everyone agrees on the due date for the first payment (and each payment after that).
If you are struggling to figure out how to divide significant home equity, or you aren’t sure about the long-term financial consequences of any of the above options, it may be wise to consult with a Certified Divorce Financial Analyst™ (CDFA®) who can assist in assessing and structuring this element of your case.
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Robert W. Baird & Co. Incorporated does not give tax or legal advice.
[1] When considering an Equity Buyout Loan, it is wise to work with a Certified Divorce Lender Professional (CDLP®) to assure that your settlement is structured and decree written so that the loan can be processed successfully.
[2] For example, the party responsible for making payments may choose to stop making those payments. In that case, the party owed money would have no choice but to take the other to court.
[3] Interest only or principal and interest
[4] To compensate the party owed for waiting to receive their money. The rate of interest should reflect the risk the lending party is taking as well as current market conditions.
[5] Husband’s portion of the equity
[6] Based on mortgage rates as of February 2026
[7] A complete table of periodic loan payments that shows the amount of principal and the amount of interest for each payment until the loan is paid off at the end of its term.
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