How Kentucky Courts Treat Mortgage, Property Taxes, and Carrying Costs When a Home Is Sold

Short answer: In Kentucky, you can seek credit or reimbursement for mortgage payments, property taxes, insurance, and other carrying costs you paid before a sale, but whether you actually receive those amounts out of the sale proceeds depends on ownership, the source of the payments (marital vs. separate funds), any written agreements, and what a judge finds to be an equitable division.

Detailed answer — what matters under Kentucky law

This answer assumes no prior written agreement about how sale proceeds will be split. Different rules apply if the property is being divided in a divorce, a partition action between co-owners, or a private settlement.

1. Who owns the property?

Ownership determines the starting point. If the title lists owners as tenants in common (or otherwise shows unequal interests), each owner is entitled to their share of gross proceeds unless the parties agree otherwise or a court orders a different split. If the property is marital property in a divorce, Kentucky courts perform an equitable division of marital assets under KRS Chapter 403 (see KRS 403.190 for how property is divided in dissolution cases). For the official Kentucky statutes, see the Kentucky Legislature statutes page: https://legislature.ky.gov/Law/Statutes/Pages/default.aspx.

2. What are “carrying costs” and how they show up at closing

Carrying costs include mortgage principal and interest, property taxes, hazard insurance, HOA dues, repairs, utilities, and other costs of owning the property while you hold it prior to sale. At closing, many items are already reflected on the closing statement (HUD-1 or Closing Disclosure) as payoffs, prorations, or credits. The lender payoff (remaining mortgage balance) is paid from sale proceeds first; property taxes and HOA dues are usually prorated between buyer and seller. The net proceeds after payoffs and seller-closing costs are what remains to divide between owners.

3. Can you get a dollar-for-dollar reimbursement for carrying costs you paid?

Possibly, but not always. Courts and buyers typically treat (a) payments that reduced the mortgage principal and (b) valid out-of-pocket expenses that preserved the property’s value differently from regular monthly payments. How a court treats these payments depends on factors such as:

Whether payments came from separate or marital funds.
Whether the payments were necessary to preserve the property (insurance, emergency repairs) versus normal living expenses.
Whether one owner was unjustly enriched by another owner’s payments.
Whether there is a written agreement or a prior court order about payments or sale splits.

If you used separate (non-marital) funds to make mortgage payments that lowered principal, you may be entitled to reimbursement or a credit before proceeds are split. If the payments came from marital funds, the court will usually consider them as part of the overall marital estate and apply equitable division rules rather than awarding a direct dollar-for-dollar reimbursement.

4. Divorce context (equitable division)

In a divorce, Kentucky courts divide marital property equitably (fairly), not necessarily equally. The court considers contributions by each spouse, the value of separate property, the contribution toward acquisition and preservation of assets, debts, and many other factors. If one spouse paid the mortgage and taxes with separate funds or made payments that preserved the asset’s value, that spouse can ask the court to award reimbursement or a larger share. See KRS provisions addressing property division in dissolution proceedings at the Kentucky Legislature site: https://legislature.ky.gov/Law/Statutes/Pages/default.aspx.

5. Co-owner disputes and partition cases

If co-owners cannot agree (for example, two siblings or unmarried partners), one owner can file a partition action in court to force sale or physical division. In a partition, the court may order an accounting to determine who paid what and may award credits for payments that preserved the property or reduced debt. The court’s accounting may shift net proceeds to reflect those credits, but outcomes vary by case.

6. Practical evidence that helps your claim

Whether you are negotiating a split or asking a court for reimbursement, you should have clear records. Useful documents include:

Bank statements showing mortgage, tax, and insurance payments.
Cancelled checks or electronic payment records.
Paid invoices and receipts for repairs or improvements (distinct from routine maintenance).
Lender payoff statements showing principal reduction.
Closing statements from the sale (showing payoffs, prorations, seller credits).
Any written agreements between the owners about payments and sale splits.

7. Tax and timing considerations

Payments that reduce principal can affect your tax basis and capital gain calculation. Also consider whether selling now or later changes the size of the net proceeds after carrying costs. Talk with a tax professional about tax consequences of reimbursements or increased basis from principal payments.

How courts commonly resolve disputes — practical outcomes

If the title is clear and two co-owners agree on a split, the closing agent will divide net proceeds per instructions and supporting documentation.
If one co-owner paid mortgage/taxes with separate funds and can prove it, courts often award reimbursement or an offset against proceeds prior to equal distribution.
If payments came from marital funds, the court usually treats them as part of the marital estate and divides assets equitably rather than making strict reimbursement.
If no clear proof exists, the court may split proceeds and consider the lack of documentation against the claimant seeking reimbursement.

Helpful hints — what to do next

Gather documents now: bank records, receipts, payoff statements, and any agreements.
Get a clear closing statement at sale. Verify mortgage payoff and prorations for taxes, insurance, and HOA fees.
If possible, negotiate a written settlement with the co-owner that itemizes reimbursements and the split of net proceeds.
Consider mediation before filing court actions. Mediation often resolves disputes faster and at lower cost.
In divorce cases, consult a family law attorney about how carrying costs affect equitable distribution under KRS Chapter 403 (see Kentucky statutes page: https://legislature.ky.gov/Law/Statutes/Pages/default.aspx).
Talk to a real estate attorney if co-owners disagree or if you need a partition action. If tax questions arise, consult a tax advisor.

Disclaimer: This article explains general legal principles under Kentucky law and gives examples. It is not legal advice, does not create an attorney-client relationship, and may not apply to your situation. For advice tailored to your facts, contact a licensed Kentucky attorney.