According to move.org, 62% of American homes carry a mortgage. What happens to the mortgage during or after a divorce? Let’s consider a few of the most common scenarios as well as some frequent pitfalls to avoid.
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1. What if both spouses have their names on the mortgage, and neither partner wants to continue living in the house?
In many ways, this is the simplest option, and you can breathe a sigh of relief if this describes you. If both partners want to move out, then the home can be sold, the mortgage paid with the proceeds of the sale, and any remainder divided. A third-party real estate agent can stage the home and sell it for you. The divorce decree will accommodate any differences between spouses and determine whether the profits from the sale should be divided evenly or not.
2. What if both spouses have their names on the mortgage, and one of the partners wants to continue living in the house?
If both spouses have their name on the mortgage, and one of them wants to continue living in the house after the divorce, then the mortgage should be refinanced so that only one person’s name is on the mortgage documents (the person who wants to continue living in the house). After the refinance, the person living in the home is solely responsible for making the mortgage payments each month.
3. What if only one spouse has her/his name on the mortgage, but the other spouse wants to continue living in the house after the divorce?
Historically speaking, this was a common scenario. A breadwinner husband may have signed the mortgage alone, but after a divorce, his wife and kids want to stay in the house. The breadwinner husband will owe alimony and child support, so it may seem like he could continue to pay the mortgage as part of the divorce settlement.
Although this solution avoids the one-time refinancing fees, it could create serious problems for the wife if payments are not made for any reason at some future point. Separating a mortgage from alimony safeguards the wife in case the husband falls behind in payments for any reason.
4. What if both spouses want to continue living in the house after the divorce?
Believe it or not, this is not as unusual as it may sound. Couples from areas where real estate is very expensive or hard-to-find may accommodate their living space to fit their new status as a non-couple. In fact, many couples have already negotiated such an arrangement in the months of separation leading up to the actual divorce date.
Even if a couple is separating amicably, it makes sense to tidy up the mortgage terms at the same time the divorce is negotiated. The mortgage should be refinanced to reflect sole ownership, with the new owner subletting or renting to the other.
A divorce negotiation determines the specifics of when, who, and how much. What if spouses have been separated for a significant amount of time before the divorce? What if one spouse has historically been the primary breadwinner? What if one or both spouses have fallen behind on mortgage payments? What if spouses agree to sell the home but can’t agree on a real estate agent or about how much repair to do before listing the home? These are the kinds of questions that divorce attorneys are trained to analyze and answer.
A jointly acquired home loan creates many potential hazards for a divorced couple who have decided to keep both of their names on the mortgage after the divorce. If one spouse stops paying their share of the mortgage, this drops the trustworthy spouse’s credit score just as much as the untrustworthy spouse’s score. The mortgage lender won’t care that you have been legally divorced; on paper, you are both equally responsible if both of your names are on the mortgage.
5. What if you can’t sell the house or refinance the loan?
What if you are upside down in your loan or if the home won’t sell? What if neither spouse has the financial resources or credit rating to qualify for a refinance alone? In divorce situations where a house can’t be sold or refinanced, the mortgage terms will be determined in a divorce decree. A divorce decree is a legal document received from the judge at the end of divorce proceedings. Both spouses are bound by law to adhere to the divorce decree, a document that spells out the terms of the division of property, alimony, child support, and custody.
Be forewarned, however, that mortgage lenders can pursue both parties for collection if both of your names are on the mortgage, no matter what the divorce decree says about who should be paying. A skillfully-worded divorce decree can help you avoid potential pitfalls if there is no other way around sharing a mortgage with a former spouse after a divorce. Find an experienced lawyer who will be able to help you find divorce solutions that fit your unique situation.