How to Split Proceeds from the Sale of a House

Whether you’re divorcing, co-owning with a partner, or dividing an inherited home, the process can be emotional, legally complex, and full of surprises. Disagreements over ownership, contributions, or what each person is owed can quickly become disputes if not handled carefully.

That’s why it’s important to understand your options before the sale occurs. Knowing how the proceeds should be divided and what factors affect that split can save time, money, and conflict.

In this article, we’ll cover the most common situations, how ownership types impact the division, how to calculate your share, and what legal tools can help protect your rights.

Types of Joint Ownership Structure

How a property is legally owned determines how sale proceeds are divided. Here are the most common ownership types and how they affect your share:

• Joint Tenancy with Rights of Survivorship
  Co-owners hold equal rights. If one dies, their share automatically transfers to the other(s). Sale proceeds are usually split 50/50 unless a written agreement says otherwise.
• Tenants in Common
  Each owner holds a specific share—equal or not. Shares can be passed to heirs. Proceeds are divided based on ownership percentages; courts may assume equal ownership if unspecified.
• Community Property (Certain States)
  In states like California, Texas, and Arizona, assets acquired during marriage are considered jointly owned. Each spouse is typically entitled to 50% of the sale proceeds unless a prenup or postnup states otherwise.
• Sole Ownership
  One person is the legal owner and usually receives 100% of the proceeds. However, if someone else contributed financially, courts may consider those contributions in disputes.

If ownership shares aren’t clearly documented, courts often default to a 50/50 split—even if that doesn’t reflect actual contributions. To avoid conflict later, draft a co-ownership agreement upfront that outlines:

• Ownership percentages
• Each person’s financial responsibilities
• What happens if one party wants to sell

How to Calculate House Sale Proceeds?

Whether you’re selling a home after a divorce, settling an inheritance, or parting ways with a co-owner, one of the first things everyone wants to know is: how much will I actually get from the sale?

It’s a fair question, but the answer involves more than just looking at the sale price. Before anyone sees a payout, several deductions must be made. Here’s a step-by-step breakdown of how it works:

1. Start with the Sale Price
   Begin with the final price the buyer agrees to pay for the home. Before any loans, fees, or costs are deducted, this is your gross sale amount.
2. Subtract the Outstanding Mortgage
   The remaining loan balance must be paid off first. If there are multiple loans (like a second mortgage or HELOC), those are deducted as well.
3. Deduct Selling Costs
   These include real estate agent commissions (usually 5–6%), closing costs, transfer taxes, escrow fees, and other transaction-related expenses.
4. Factor in Agreed-Upon Repairs or Improvements
   If one party paid for major improvements to increase the home’s value, those costs may be reimbursed before the remaining funds are divided. However, only documented capital improvements (not regular maintenance) typically qualify.
5. Divide the Net Proceeds Based on Ownership Percentages
   Once all costs are subtracted, the remaining balance is split according to each party’s ownership share—either 50/50 or based on a prior agreement.

This is a summarized version of the process. Just like any high-value transaction, there will be added caveats, explained later in this article.

Common Scenarios for Splitting House Sale Proceeds

Every home sale involving multiple owners brings its own challenges, but some situations are far more common (and complex) than others. Here’s a breakdown of how each situation typically plays out and what to watch for.

Divorce or Separation

Selling a home during a divorce is one of the toughest financial steps a couple can face. Emotions run high, and dividing proceeds isn’t always straightforward.

Many assume it’s a 50/50 split, but that’s not guaranteed. Prenuptial agreements and divorce decrees can override what’s on the title, especially in equitable distribution states, where courts aim for fairness, not equality. Common outcomes include:

• Selling the home and splitting proceeds
• Selling the home and one spouse gets more of the proceeds than the other
• One spouse buys out the other
• Continued co-ownership (often until children reach a certain age)

Courts may give special consideration to the primary caregiver, sometimes granting temporary rights to stay in the home, regardless of legal ownership. Prenuptial and postnuptial agreements can outline exactly how the house should be divided, especially in community property states, where assets are usually split 50/50 unless stated otherwise.

Unmarried Couples

More couples today are buying homes together without getting married, creating unique legal challenges when it’s time to part ways. Unlike married couples, unmarried co-owners don’t have automatic legal protections. If there’s no co-ownership agreement, disputes over who paid more, who deserves more, or who gets to keep the home can quickly escalate. Here are the key considerations:

• Always draft a written agreement at the time of purchase outlining ownership percentages, financial responsibilities, and what happens if the relationship ends.
• If one party wants to keep the home, they usually need to buy out the other at the current fair market value.
• If no agreement exists, courts often rely on financial documentation and contribution history to settle disputes, with outcomes varying by state.

The best way to protect your investment is to treat the purchase like a business deal, with clear upfront terms in writing and regular communication about ongoing contributions.

Inheritance Situations

When a property is inherited by multiple heirs, sharing it or dividing the sale proceeds can quickly get complicated. One heir may want to sell, while another wants to keep it for personal or emotional reasons. Often, there’s an emotional attachment, which can lead to further confrontation. When there’s no agreement, heirs typically have two options:

1. Sell the house and divide the proceeds
2. The heir or heirs who want to keep the house buy out the others at the current market value

If one heir has been living in the home, courts may allow them to stay temporarily or adjust their share based on rent value or expenses paid.

Inherited vacation homes come with unique emotional and financial challenges. Unlike a primary residence, vacation properties are often tied to family memories, and multiple heirs may want to continue using the home. However, maintenance costs, taxes, and scheduling conflicts can cause friction.

If heirs cannot agree (about selling the home, buyouts, or usage), a partition action may be the only option. This legal process allows a court to force the sale of jointly owned property and distribute the proceeds among the co-owners. Partition actions are considered a last resort because:

• They can be expensive and time-consuming due to legal fees and court involvement.
• They often result in strained or permanently damaged personal relationships.
• The sale price might be lower than a voluntary, coordinated sale.

But, when negotiations reach a deadlock, and no other resolution is possible, a partition action may be necessary to finalize the matter and distribute the estate.

Business Partners and Investment Properties

Selling an investment property owned by partners should ideally be the most simple co-owned sale. Unlike family inheritance situations, business partnerships typically begin with a clear understanding that the arrangement is financial. Still, disputes can arise if expectations are not aligned or formal agreements are not in place. That’s where operating agreements and well-drafted partnership terms are.

An operating agreement is a legally binding document that outlines the structure and terms of a business partnership, including:

• Ownership percentages
• How profits and losses are split
• Who pays for any contributions
• Who manages the investment, and how they are compensated
• What happens if a partner wants to exit
• How conflicts are handled

It also should identify how proceeds from a sale will be divided, which may be:

• Equally, if all partners contribute similarly in capital, effort, and risk.
• Proportionally based on each partner’s financial investment or agreed-upon ownership share.

Furthermore, a buy-sell clause should provide a roadmap for what happens if one partner wants out.

Partnerships rarely have equal contributions. One partner might contribute most of the down payment, while another manages the renovations or ongoing operations. These imbalances should be reflected in the agreement through:

• Ownership percentages: Adjusted based on capital contributions or sweat equity.
• Priority repayment: Allowing early repayment to the partner who invested more upfront before splitting the remaining profits.
• Tiered profit splits: This happens when one partner recoups their initial investment first, and the remaining profit is split as a specified ratio (for example, 60/40).

Partners should agree on how to split rental income and ongoing costs (repairs, taxes, management). Best practices include:

• Proportional splits based on ownership
• Shared business bank account
• Regular accounting and transparent recordkeeping

Accounting for Unequal Contributions

When one co-owner contributes more money than the other, whether for the down payment, mortgage, or home upgrades, splitting the proceeds evenly doesn’t always feel right. If those contributions aren’t documented or discussed early, dividing the profits later can get complicated.

Down Payment Differences

When co-buyers contribute different amounts to a down payment, this money must be acknowledged and recorded upfront. Otherwise, disputes can arise when it’s time to divide the sale proceeds.

Down payments reflect ownership investment. If one person contributes more, a 50/50 split may not feel fair. A simple way to handle this is to calculate ownership based on each person’s share of the down payment.

For example, if one person contributes $75,000 and the other contributes $25,000 toward a $100,000 down payment, they’ve invested in a 75/25 ratio, or 75% and 25%. When the home is eventually sold, the net proceeds, after paying off the mortgage and closing costs, can be divided in that same 75/25 ratio.

This ratio can guide how profits or losses are shared. To protect everyone involved, it’s best to put these terms in writing through a formal co-ownership or partnership agreement at the time of purchase. The contract should specify how proceeds are split based on the down payment proportion and include clauses for repayment priority or adjusted equity if needed. Clear terms early on make for fewer problems later.

Mortgage Payment Imbalances

When co-owners contribute unequally to mortgage payments, especially over time, it can complicate how proceeds are divided during a home sale. This can happen when one owner pays more toward the mortgage each month or covers the entire amount for an extended period.

If you’re planning to account for this imbalance, it’s important to understand how those payments contribute to ownership equity and how they don’t. Monthly mortgage payments typically include both principal and interest. Only the principal portion of each payment actually builds equity in the home. The interest portion is essentially a financing cost paid to the lender and does not increase your stake in the property.

During the early years of a mortgage, most of the mortgage payment is interest, while only a small portion goes toward the principal. Assuming the property increases in value, owners should calculate and separate the equity-building principal from interest costs to fairly calculate who gets what. To figure out the principal portion of each payment, owners should refer to the loan amortization schedule.

For example, Owner A and Owner B bought a house together and agreed to split ownership 50/50. Owner A paid the full $2,000 mortgage payment each month for 12 months while Owner B was finding a new job. According to the loan amortization schedule, of the total $24,000 of total payments, only $5,600 went toward paying down the principal.

In this situation, Owner A might argue for a $6,000 increase in their share of the sale proceeds to reflect their added equity contribution. The remaining $18,000 in interest would be treated as a personal cost or shared expense, depending on the ownership agreement.

To properly account for payment imbalances, accurate, dated records of every mortgage payment and how much of each payment went to principal versus interest are essential. Without clear documentation, it may be difficult or impossible to justify adjustments in how the sale proceeds are divided.

Home Improvements and Maintenance

Contributing differently to the upkeep or enhancement of a property can significantly impact how proceeds are divided during a home sale. Firstly, it’s important to separate capital improvements from routine maintenance, as typically, only capital improvements justify adjusting the division of sale proceeds. Here’s how you can easily distinguish between the two:

• Capital Improvements: Add lasting value (e.g., new kitchen, room additions, solar panels)
• Routine Maintenance: Keeps the property functional but doesn’t raise its value (e.g., cleaning gutters, repainting walls, replacing worn carpet)

Capital improvements can increase a property’s market value and potentially raise the sale price. If only one owner paid for such improvements, they may seek to recoup their investment or receive a larger share of the proceeds. In this situation, the party would need clear documentation, including:

• Invoices or receipts for materials and labor
• Bank or credit card statements showing who paid
• Before-and-after photos, where applicable
• Written agreements (even informal ones) acknowledging the intent behind the improvement

Where these situations get complicated is when the owner who paid for the improvement wants to be reimbursed for their expenses and the actual increase in market value as a result of the work.

Ideally, how to split the proceeds of the house sale in this situation should have been agreed upon in writing before the work took place. If no co-ownership agreement was established that states the owner benefits from the market value increase, courts may default to reimbursing only documented out-of-pocket expenses.

Tax Implications of House Sales and Proceeds Division

Selling a home can have significant tax consequences, especially if it is an investment property and doesn’t qualify for a primary residence tax exclusion.

Capital Gains Considerations

While most people focus on the sale price, understanding how your purchase price affects capital gains is just as important. Capital gains tax applies when you sell a property for more than you paid. The difference between your original purchase price (plus qualifying improvements and selling costs) and your sale price is your gain and potentially taxable.

One major tax benefit for homeowners is the primary residence exclusion. If the home was your primary residence for at least two of the past five years, you may be able to exclude up to:

• $250,000 in gains if you’re single
• $500,000 if you’re married and filing jointly

For unmarried co-owners, each person may claim the $250,000 exclusion as long as both meet the requirements separately. If multiple single co-owners lived in the home and each meets the ownership and residency requirements, each person may claim the exclusion individually.

To qualify for the primary residence exclusion, you must have owned the home for at least two years and lived in it as your primary residence for at least two of the last five years before the sale.

What a tax exclusion means is best explained with an example. If a single individual bought a home for $300,000 and sold it later for $600,000, their gain is $300,000. However, they could exclude up to $250,000 of that gain from capital gains taxes, meaning only $50,000 would be taxable.

Timing also plays a key role in how much tax sellers pay on the proceeds of a house sale. The IRS treats short-term and long-term gains differently:

• Short-term capital gains (if you’ve owned the property for one year or less) are taxed at your ordinary income tax rate, usually higher.
• Long-term capital gains (if you’ve owned the property for more than one year) are taxed at reduced rates, typically 0%, 15%, or 20%, depending on your taxable income and state.

Most homeowners don’t need to worry about short-term capital gains rates, but house flippers often consider it in their business strategy. It may be worth holding off on the sale if you’re close to reaching the one-year mark. That extra time can translate into thousands in tax savings.

Special Tax Situations

While most home sales fall under standard tax rules, certain situations have unique tax considerations. Whether the property was an investment, inherited, transferred through divorce, or owned by multiple parties, it’s important to understand how each scenario affects your tax liability.

Investment Properties and 1031 Exchanges

If the home being sold is an investment property, not a primary residence, the capital gains exclusion doesn’t apply. However, you may be able to defer capital gains taxes through a 1031 exchange. This IRS rule allows you to reinvest the proceeds from the sale into a “like-kind” investment property, delaying taxes until the new property is sold.

A 1031 process can be repeated over multiple sales while keeping the original cost basis. Strict timelines and rules must be followed to qualify, so it’s wise to work with a qualified intermediary and tax advisor.

A 1031 exchange strategy can be particularly helpful when a property is inherited. When a property is inherited, it typically receives a stepped-up basis, meaning the cost basis is reset to its fair market value at the time of the original owner’s death. This can reduce, or even eliminate, capital gains taxes when the heirs later sell the property. Even if there were over a million dollars of accumulated gains after decades of investing, the cost basis would reset to market value when the property is inherited.

Divorce-Related Transfers

In a divorce, property transferred between spouses is typically not taxed at the time of transfer. However, the receiving spouse assumes the original cost basis. That means they could owe capital gains taxes based on the original purchase price when they eventually sell the home.

Tax Reporting for Co-Owners

When a property has multiple owners, each person must report their share of the income, expenses, and capital gains. Even if only one person receives the 1099-S (the IRS form reporting the sale), all co-owners are responsible for properly reporting their portion on their individual tax returns. It’s important to communicate and record who paid what and how profits should be divided.

State Tax Considerations

Federal tax rules aren’t the only tax consequence of selling real estate. State taxes can also impact your bottom line. For example, states like California tax capital gains as ordinary income, regardless of whether they’re short- or long-term. Other states may have exemptions, reduced rates, or no capital gains tax at all. Check your state’s laws and consider how they interact with federal rules to get a complete picture of your potential tax liability.

Legal Processes for Disputed Proceeds

When co-owners can’t agree on how to split proceeds (or whether to sell at all), legal action may be the only solution. These disputes are more common than you’d think, especially after divorce, inheritance, or partnership breakdowns. Here are the most common ways to resolve these conflicts, starting with the least expensive option.

Mediation and Arbitration

If you’re facing a disagreement over how to split proceeds of a house sale, mediation is usually the first and least expensive step. If parties can agree to a solution through a mediator, it also can help protect relationships. In mediation:

• A neutral third party helps both sides reach an agreement.
• It’s private, non-binding, and much faster than going to court.
• Costs typically range from $100–$500 per hour, often split between both parties.
• Most disputes are resolved in a few sessions.

If mediation fails, you can try arbitration. This is more formal and legally binding. An arbitrator (often a retired judge or attorney) hears both sides and makes a final decision. It’s faster than court but offers less flexibility, as they cannot be appealed.

Partition Actions: When One Party Refuses to Sell

When one co-owner wants to sell the property and the other refuses, a partition action may be the only legal option left. A partition action is a court process that forces the sale of jointly owned property. It’s commonly used when ex-partners, family members, or business associates can’t agree on what to do with a shared house. Here’s how it typically works:

1. One owner files a partition lawsuit in court.
2. If approved, the court orders the property to be sold through a private sale or public auction.
3. Once sold, the net proceeds are divided based on each person’s legal ownership share.

In some cases, the court may adjust the split to reflect one party’s financial contributions to the property (such as paying the mortgage, covering repairs, or funding improvements). Costs of a partition action can include:

• Attorney fees
• Court costs and filing fees
• Lost time, as these cases often take several months or more to resolve

While partition actions are effective, they’re considered a last resort. Courts prefer co-owners try to resolving disagreements through written agreements or mediation before litigation becomes necessary. Partition actions can strain relationships and reduce profits due to legal fees and delays. But when no agreement can be reached, it’s often the only way to move forward legally.

Best Practices for Smooth Real Estate Proceeds Division

Clear communication and proper documentation can prevent most issues before they start. Whether you’re co-owning with a partner, family member, or investor, the steps you take early on will determine how easy the process is when it’s time to sell.

Documentation and Recordkeeping

Even if you trust your co-owner, don’t rely on memory or verbal agreements. Good recordkeeping protects everyone. At a minimum, co-owners should keep the following:

• Purchase documents: title, deed, closing statement
• Proof of contributions: down payments, mortgage payments, repair/upgrade receipts
• Expense records: insurance, taxes, utilities, and maintenance costs
• Rental income records (if applicable)
• Written communications: emails or notes related to agreements or major decisions

Discuss the plan for dividing proceeds before you list the property. It’s much easier to align expectations early than to negotiate under pressure later. If there’s disagreement, use an escrow service to hold the disputed portion of the funds until resolved.

Professional Support During the Property Division

Sometimes, the smartest move is to bring in an expert. Here’s who can help—and why:

• Real estate attorneys can draft or review co-ownership agreements and resolve disputes.
• Agents act as neutral parties and help manage the transaction.
• Financial advisors can offer fair assessments and help with splitting funds.
• Tax professionals ensure you understand capital gains, deductions, and state-specific rules.

Working with experts ensures the sale and division of proceeds are handled correctly, both financially and legally.

Get the Right Real Estate Support Before You Sell

Dividing proceeds from a home sale can be simple, but only if the details are clear. Ownership structure, financial contributions, tax rules, and legal agreements all shape how much each person receives profits. Without a plan, even friendly sales can turn into costly disputes.

Start by documenting contributions, outlining ownership percentages, and putting everything in writing. Mediation or legal help may be needed if conflicts arise, but most issues are avoidable with upfront communication and records.

If you need help selling your property, whether on your own or with a co-owner, FastExpert can help get you started. FastExpert connects you with top-rated real estate agents who understand the complexities of co-owned sales. Compare agents, read reviews, and choose the right expert for your situation.