Going through a divorce often means big questions about the family home. Do you sell it and split the proceeds? Or can one of you stay and “buy out” the other’s share?
Most people assume the only way to do this is by refinancing with a bank. But there’s another, lesser-known option that the IRS allows: creating a private mortgage between ex-spouses.
Here’s how it works in plain English: instead of selling the home, the spouse who stays puts together a legal loan agreement with the spouse who’s moving out. Think of it like turning your ex into the lender. You make monthly payments — with both principal and interest — just as if you were paying a bank.
The tax wrinkle?
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The spouse making the payments may be able to deduct the interest as “qualified mortgage interest” on their taxes.
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The spouse receiving the payments must then report that interest as taxable income.
This can be a win-win. The spouse keeping the home avoids the stress of refinancing, and the spouse leaving still receives fair value for their share. Of course, this only works if the agreement is properly structured, with a reasonable interest rate and written into your divorce settlement.
Why consider this approach?
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It avoids a forced sale of the family home.
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It allows children to remain in a familiar environment.
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It creates financial flexibility when refinancing isn’t possible.
The takeaway: You don’t always have to sell the house to move forward after divorce. There are creative, IRS-approved solutions that let you keep the home you love while ensuring both parties are treated fairly.
Thinking about whether this could work for you? At The Divorce Collab, I connect you with trusted divorce attorneys, Certified Divorce Lending Professionals (CDLPs), and financial experts who can help you explore all your options. You deserve a clear plan — and a home decision that supports your future.
Let’s chat. Schedule a consultation today.
