When Homeowners Find
Breaking Up Hard to Do

Question: I bought a house with my ex-fiancé, but unfortunately the relationship dissolved. We both have joint ownership of the home. Should I buy him out and keep the house or give him a lump sum with the condition that he refinance the home in his name? If I keep it, I'm afraid I won't break even in the next few years with this current housing market.

-- Cary Xiong, Pontiac, Mich.

Cary: I bet you thought there were only two of you in your relationship when you bought the house with your ex-fiancé. But in reality, there were three: You, him and your lender.

Unfortunately, you can't completely break up with your ex without calling it quits with the lender, too.

I'm presuming, of course, that both your names aren't just on the title but also on the loan. That means that the lender will hold you both equally responsible for the debt -- and won't be eager to let either of you go unless the person who keeps the house can prove that he or she can keep up loan payments, too.

The cleanest way to break up with the lender is to sell the house. Then you and your ex can split the proceeds according to your respective investment in the property. Given your doubts about the future of your local housing market, this may be the smartest choice.

It may take a long time to sell your house, however, especially given the slowdown of the auto industry in your area. So another option is for both of you to move out, continue to meet your mortgage obligations and rent the place out until the market recovers. (Although most economists are predicting that the overall housing market will improve within the next two or three years, it's anyone's guess when that will happen within particular neighborhoods.)

But if you can't stomach the thought of keeping financial ties with someone with whom you've severed emotional ones, then you must  decide which one of you is most able to handle a mortgage payment solo -- because that's all that your lender partner cares about. You and your ex should investigate refinancing together since whoever shoulders the new debt will also have to deal with a new interest rate and closing costs. Any home equity accrued during the time you both lived there will reduce the amount owed. The lump sum that the other person pays should reflect that.

As you split your financial obligations, don't forget to sever your legal ones, too. The partner who is giving up ownership of the home needs to sign a quitclaim deed -- in which that person relinquishes any legal claims to the property -- that must be filed with the county.

Your lender can help you with the technical aspects of the breakup. But only you and your ex can figure out how much post-breakup contact you can stand and whether the potential financial benefits outweigh the emotional costs.

-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.

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