Financing a Divorce Buyout with a HELOC: Pros, Cons, and Risks

Last updated: July 2025

Divorce often means untangling shared assets, and if you want to keep the family home, you may need to buy out your ex-spouse’s equity. 

A Home Equity Line of Credit (HELOC) can provide the flexible funding you need, allowing you to tap into your home’s value without liquidating other investments. 

Whether you’re aiming to preserve cash flow or minimize closing costs, understanding how a HELOC works in this scenario is the first step toward a smoother transition.

What is a divorce buyout?

When a couple divorces and owns a home together, one common option is for one spouse to keep the property by “buying out” the other’s share of the home equity. This is commonly referred to as a divorce buyout.

For example, if a home is worth $500,000 and has a remaining mortgage balance of $300,000, the equity is $200,000. If the spouses agree to split equity equally, the spouse keeping the home would need to pay $100,000 to the other party. This amount is the buyout.

Buyouts provide a clean separation, allowing one spouse, often the parent with primary custody, to maintain stability. But they also require liquidity, which many homeowners don’t have readily available. That’s where a HELOC comes in.

Start an application with HomeEQ and see if you’re approved within a few minutes. 

How a HELOC can be used to buy out a spouse’s share

A Home Equity Line of Credit (HELOC) allows homeowners to access a portion of their home’s equity as a revolving credit line. 

In a divorce, it can be a practical way for one spouse to buy out the other’s interest in the home without having to sell or refinance the mortgage.

Here’s how it works:

1. Apply for a HELOC while both spouses are still on the title
2. Use funds from the HELOC to pay the agreed buyout amount
3. Transfer full ownership to the retaining spouse through a quitclaim deed or divorce settlement
4. That spouse now takes on full responsibility for the HELOC and existing mortgage

HELOCs are especially useful in this scenario because they:

• Provide faster access to funds than a full refinance
• Have lower interest rates than personal loans or credit cards
• Allow flexibility in repayment

Pros of using a HELOC during a divorce settlement

Using a HELOC for a divorce buyout can offer several advantages, especially when time, stability, and simplicity are top priorities:

1. Keep the home without selling

This can be especially important if children are involved or if the housing market isn’t favorable for sellers.

2. Faster than a full refinance

HELOCs, particularly digital ones like HomeEQ’s, can be approved in days, making them ideal when court timelines are tight.

3. Interest-only payments during the draw period

This feature can help the retaining spouse manage cash flow during the transition.

4. Avoid closing costs of a full refinance

HELOCs often come with lower upfront costs than a mortgage refinance.

5. Retain existing low-rate mortgage

If your current mortgage has a low fixed rate, a HELOC lets you keep it in place while accessing equity.

Risks and financial considerations to keep in mind

While HELOCs offer flexibility, they come with important risks to weigh:

1. You’re taking on more debt

A buyout-funded HELOC increases your overall debt burden. Make sure you can comfortably handle the payments.

2. Variable interest rates

HELOCs usually have variable rates, which can rise over time. Be prepared for payment fluctuations.

3. Impact on your credit

Taking out a HELOC adds to your credit profile and can affect your debt-to-income ratio, which may impact future borrowing.

4. Title and legal clarity

Ensure all documents (like quitclaim deeds and title updates) are handled properly to avoid future legal issues.

5. Home is still collateral

A HELOC is secured by your home. Defaulting on the loan could lead to foreclosure.

This is why it’s essential to talk with a financial advisor and divorce attorney before using home equity for a buyout.

Who qualifies for a HELOC during or after divorce?

Qualifying for a HELOC while going through a divorce can be more complex, but not impossible. Lenders look for:

• Sufficient home equity: Typically 15–20% or more after the mortgage balance
• Good credit score: Most lenders require 620+, but better terms come with stronger credit
• Stable income: Lenders will want proof that you can repay the HELOC. This may include spousal support or consistent employment
• Debt-to-income ratio: Ideally below 43%

Tip: Apply for the HELOC before removing your name from the title or refinancing the existing mortgage. HomeEQ’s soft credit pull allows you to explore your options without affecting your score.

How much is my home equity worth? Use our handy HELOC Loan Calculator.

Alternatives to a HELOC for handling property division

While a HELOC is a common and flexible tool for property division, it’s not your only option for financing a divorce buyout. Consider these alternatives:

1. Cash-out refinance

This replaces your current mortgage with a larger one, and gives you a lump sum. Good for those who want to consolidate into one loan.

2. Personal loan

Unsecured loans are faster and don’t require home equity, but they come with much higher interest rates and lower limits.

3. Sell the home and split proceeds

Sometimes, selling is the cleanest option. This removes all joint obligations but may require finding temporary housing.

4. Home equity loan

Similar to a HELOC, but disbursed as a lump sum with a fixed interest rate.

Each option comes with its own pros, costs, and implications, so weigh carefully based on your financial position and post-divorce goals.

FAQ: Use a HELOC for divorce buyouts

Can I apply for a HELOC during the divorce process?

Yes, but both parties may need to agree if they are co-owners. Some lenders prefer the process to be finalized.

Can I use a HELOC to pay off my ex’s share of the home?

Yes. This is one of the most common and practical HELOC use cases.

Do I have to refinance the mortgage too?

Not necessarily. One advantage of a HELOC is you can retain your current mortgage.

Is the HELOC interest tax-deductible?

It depends. If used to substantially improve the home, it may qualify. A divorce buyout does not generally qualify; consult a tax advisor.

Will I need an appraisal?

Some lenders, including HomeEQ, use digital valuation tools. In some cases, a full appraisal isn’t required.

Conclusion: Navigating divorce with clarity and financial control

Divorce is never easy, but with the right tools, it doesn’t have to derail your financial future. A HELOC can provide a manageable, fast-access solution to retain your home, fulfill your buyout agreement, and move forward with security.

Like any major decision during divorce, using a HELOC requires thoughtful planning. 

Consulting legal and financial professionals is recommended; weigh your ability to repay and choose a lender that offers transparency, speed, and flexibility, like HomeEQ.

Explore your options today with a soft pull that won’t affect your credit. 

Check your rate with HomeEQ and take control of your next step.