Dividing the Marital Home in NJ is the decision most couples wrestle with in a divorce. Do you sell and split the proceeds? Can one of you buy out the other and refinance? Should you co-own for a few years so the kids can finish school? Our goal here is to give you the practical playbook—what each path looks like, the tax basics, and the traps we see in real cases—without drowning you in citations.
Before we compare the options, two ground rules shape every outcome in New Jersey: equitable distribution and taxes.
Dividing the Marital Home in NJ – The Ground Rules: Equitable Distribution and Taxes
New Jersey uses equitable distribution, which means the court divides marital property fairly, not automatically 50/50. Judges consider factors such as the length of the marriage, health, income, contributions, and the standard of living. That framework lives in New Jersey’s statute and guides every house decision we negotiate or try.
Taxes matter at two moments: (1) when you transfer the home (for a buyout), and (2) when the home is later sold (by both of you or by the spouse who keeps it). Federal law is kind to divorcing couples on transfers between spouses or incident to divorce—those transfers are generally non-taxable, and the recipient takes the carryover basis (the other spouse’s basis). Later, when a sale happens, the familiar home-sale exclusion rules (up to $250,000 per person, or $500,000 if married filing jointly and the conditions are met) can apply. The details are in IRC §1041 (divorce transfers) and IRC §121 / IRS Pub. 523 (home-sale exclusion).
New Jersey also imposes closing-time fees on deeds, including the Realty Transfer Fee and a recently expanded “Graduated Percent Fee” (the updated, tiered version of the “mansion tax”). As of July 10, 2025, residential transfers at $1,000,000+ face a seller-side graduated fee: 1% for $1M–$2M, 2% for $2M–$2.5M, 2.5% for $2.5M–$3M, 3% for $3M–$3.5M, and 3.5% above $3.5M. Check the Division of Taxation’s guidance for current rates, forms, and grace-period rules tied to contract dates.
With those basics in mind, let’s compare the three main paths: Sell, Buyout, and Co-Own/Deferred Sale.
Option 1 — Sell the Home Now
Selling provides clarity and a clean break. You hire a broker, agree on list price and timing, sell, pay off the mortgage and closing costs, then split net proceeds under your settlement. For many families, this avoids years of second-guessing the market or shouldering an oversized payment on a single income.
Pros in plain English. A sale converts equity to cash and removes joint risk. Neither of you carries future repairs, tax increases, or market swings. If you’re still legally married at closing and meet the ownership/use tests, you may qualify for the $500,000 combined federal gain exclusion; after divorce, each individual’s exclusion is generally $250,000 if they qualify. See IRS Pub. 523 for exact tests and examples.
Cons to weigh. A sale may mean moving twice and disrupting school routines. If you locked in a low mortgage rate, replacing it can be expensive. In a soft market, the net may be lower than you hoped, and staging/repairs cost money. New Jersey closing costs include the Realty Transfer Fee and the updated Graduated Percent Fee at $1M+ price points, which can materially affect your net. Review the Division of Taxation’s current schedule before you set expectations.
How we make this work smoothly. We pin down a valuation method (independent appraisal or broker price opinion), choose who manages the sale logistics, pre-agree on a minimum acceptable price, and spell out credits for carrying costs between contract and closing. That level of detail prevents “who pays what” blow-ups when you’re already under stress.
Option 2 — One-Spouse Buyout with Refinance
A buyout keeps the home with one spouse and gives the other cash or offset value from elsewhere in the marital estate. The staying spouse refinances (or otherwise satisfies the mortgage), and the leaving spouse signs a deed transferring title.
Why clients pick this. Stability for the children often drives the buyout. Keeping the neighborhood, school, and routine can be worth a lot. A buyout can also protect a low mortgage rate if the loan can be assumed (rare on conventional loans; sometimes possible on FHA/VA/USDA) or if the refinance is still affordable.
What the bank cares about. Lenders generally want the staying spouse to refinance into a solo loan within a set time so the other spouse is released from liability. If the loan isn’t refinanced and your ex stays on the note, late payments can still hurt their credit. We put clear timelines and remedies into your settlement—what happens if the refinance stalls, whether a future sale is triggered, and who covers interim costs.
Tax basics for the buyout. If a spouse transfers their interest to the other incident to divorce, there’s no gain or loss at that moment; the recipient takes the carryover basis under §1041. Down the road, when the staying spouse sells, §121 may allow a $250,000 exclusion if they meet the ownership and use tests as a single filer. Special rules help when one spouse moves out but the other remains under a divorce or separation instrument—the absent spouse can, in some cases, count the occupant spouse’s use toward the “two-of-five-years” test; see 26 U.S.C. §121(d)(3)(B) and Pub. 523 for the fine print.
What can go wrong. The buyout number can be unrealistic if you skip a real valuation or ignore closing costs you’d both pay in a sale. Some couples set the buyout at “fair market value minus a hypothetical broker fee,” so the staying spouse doesn’t overpay compared to a sale scenario. Others prefer a straight appraisal number. We model both so the choice feels fair.
Paperwork to expect. We draft a short, plain-English settlement section covering the buyout amount, the refinance deadline, interim occupancy, who pays taxes/insurance/repairs until the refinance funds, and what deed is used at transfer. We also address title, homeowners insurance endorsements, and any escrowed items (for example, a repair credit) so no one is surprised after closing.
Option 3 — Co-Own or Defer the Sale
Sometimes the best answer is not to decide today. You can co-own for a defined period and sell later—often tied to a future date or event such as a child finishing middle or high school. One spouse may have exclusive possession to live there with the children, or you might use a “nesting” arrangement temporarily while each of you rotates in and out.
When this makes sense. Co-ownership buys time: time for the market to improve, for a new job to stabilize, or for kids to ride out a school transition. It can work well when both of you are disciplined and the house payment is comfortable on combined support and incomes.
What to put in writing. Success comes from clarity. Decide who pays what, how you’ll handle repairs, whether the house can be rented if one of you moves, and how you’ll set the sale price later. Spell out how equity will be credited if one of you is making extra principal payments, and what happens if a roof or HVAC dies. We often add a disagreement tiebreaker, like binding mediation, so you don’t end up in a stalemate over the list price.
Tax angle. Co-owning delays the capital-gain question until sale. As long as the eventual seller meets the ownership and use tests at the time of sale, they can look to the §121 exclusion. If only one of you stays in the home, the former spouse “use-by-spouse” rule under §121(d)(3)(B) can sometimes help the one who moved out meet the use test when the other remained under a divorce instrument. Plan this expressly in your agreement if a later sale is expected.
Valuation, Timing, and the “Fair Number”
Every path turns on value. We typically start with a licensed appraisal or two broker opinions, and then we agree on a valuation date. Improvements, deferred maintenance, and market shifts all matter. In buyouts, couples often build a simple net-of-sale model so the buyout reflects what each would walk away with if you listed the house—mortgage payoff, estimated broker fee, transfer fees, and typical credits.
That modeling exercise sounds tedious; it prevents resentment. It also avoids one classic mistake: setting a buyout price so high that the staying spouse is house-poor after the refinance.
Mortgages, Title, and Deeds: How to Avoid “Phantom Liability”
A deed takes a name off title; it does not take a name off the mortgage. If you’re the spouse leaving the home, your credit is still on the hook until the loan is paid off or refinanced. Lenders rarely release a borrower without a full refi. Your settlement should be blunt about deadlines and consequences if a refinance doesn’t close on time.
For title, New Jersey closings commonly use a deed that fits local practice; the quitclaim is sometimes used, but your attorney and the title company will pick the right instrument for your facts. We also tighten up insurance (new declarations listing the correct owner/occupant) and make sure escrows are handled cleanly at transfer so bills don’t fall through the cracks.
Capital Gains and the Home-Sale Exclusion
When a sale happens—now or later—federal law may let you exclude up to $250,000 of gain per qualifying seller (or $500,000 if married filing jointly and the tests are met). You generally need two years of ownership and two years of use in the five years before the sale. Divorce-specific rules can help with the use test when one spouse moved out but the other stayed under a divorce instrument; the statute treats the absent spouse as if they used the home during that time. IRS Pub. 523 is the plain-English guide; the rule itself is in 26 U.S.C. §121.
Remember: a buyout during divorce is usually non-taxable under §1041, but it carries over basis to the spouse who keeps the home. That can increase the taxable gain later if the home appreciates a lot. Knowing this, some couples choose to sell now if they’re already near the exclusion limit.
New Jersey Transfer Fees and the 2025 “Mansion Tax” Update
Sellers in New Jersey pay the Realty Transfer Fee when a deed is recorded (there are limited exemptions). In 2025, New Jersey also expanded and shifted the so-called “mansion tax,” now called the Graduated Percent Fee. For residential transfers at $1,000,000 or more, the seller pays a tiered percentage of the entire price—1% for $1M–$2M, 2% for $2M–$2.5M, 2.5% for $2.5M–$3M, 3% for $3M–$3.5M, and 3.5% above $3.5M—subject to published effective-date and grace-period rules. Always check the Division of Taxation’s latest chart before you sign.
If your likely sale price is near those thresholds, we model the net both ways (sell now vs. buyout now and sell later) so the transfer fee doesn’t blindside you.
Choosing Among Sell, Buyout, and Co-Own
Here’s how we help clients decide:
- If you both want out cleanly and the numbers work, sell now. It’s straightforward, cash arrives quickly, and neither of you is tied to the other’s credit or repair bills.
- If keeping the home preserves stability and you can truly afford it after refinance and support, choose the buyout. Use a real valuation, set a realistic timeline, and don’t forget carry costs and reserves.
- If the market or life timing argues for a pause, co-own under a tight agreement with an end date and a decision process baked in. Co-ownership without rules is just postponing a fight; co-ownership with rules can be a smart bridge.
Whatever you choose, keep the tone businesslike. Numbers—not emotions—decide whether a house is sustainable.
What to Bring to Your First Meeting
Bring your Judgment of Divorce or draft PSA, recent mortgage and home equity statements, your property tax and insurance bills, any appraisal or broker opinions, and a simple monthly budget. With those, we can sketch your net in each scenario and point to the cleanest path.
Final Word
The house is emotional—but the decision is financial and legal. If you want the cleanest break, sell. If you want stability and can afford it, buy out with a real refinance plan. If you need time, co-own with rules and an end date. We’ll run the numbers, flag the taxes, and draft the terms so you can move forward with certainty. Get in touch for a FREE no obligation consultation.
Notes: This guide is for general information. Law is applied to real facts. For advice about your specific situation, speak with a New Jersey family lawyer.