Divorce And Your Mortgage: Common Questions, Answered
If you’ve ever been through a divorce, then you know what a stressful situation it is for everyone involved. And that’s because as emotionally and mentally draining as divorce is, it also presents many financial challenges.
The more financial assets you’ve accumulated with your former spouse, the harder it will be to untangle all of that. And the two of you may not always agree about which person gets to keep certain assets, like your home.
Even if you both think that the divorce is necessary, it can be hard to agree on who gets to keep the home. And you probably have many divorce and mortgage questions that need answers.
How Does Divorce Affect My Mortgage?
You may have decided to end your marriage commitment. But divorce in and of itself doesn’t change the commitment you and your spouse made to your mortgage.
If both individuals applied for the mortgage, then both of you are still responsible for the monthly payments. But when a couple splits up and there’s a mortgage, you have a few options.
Usually, one of these three scenarios will play out:
- Home is sold to a third party: Many people find that it’s just easier to sell the home outright and split the proceeds. Both parties get to make a clean break and there’s no negotiation over who gets to keep the house.
- One spouse buys the home: Another option is that one spouse can buy the home from the other. When this happens, they’ll have to refinance the mortgage to have the other party’s name removed.
- One person stays in the home: Sometimes, one person will stay in the home and then rely on the other person to continue making mortgage payments. This can happen in situations where there are children involved. However, it’s the riskier option, which we will discuss in more detail later.
There is no one right answer as to what should happen with your mortgage when you’re going through a divorce. The goal is that both parties can agree on the best next steps.
What Issues Need To Be Resolved With The Mortgage?
When you’re going through a divorce, many issues need to be resolved in regard to your mortgage. The first step is to decide whether you’ll keep or sell your home.
If one person wants to keep the home and the other party doesn’t, then it may make sense for one spouse to buy out the other person. However, you’ll want to make sure you can afford the mortgage payments on your own.
And regardless of whether you stay or sell, you’ll also need to agree on how the equity in your home will be divided. The equity can be used as a bargaining chip if one person wants the home while the other person wants to avoid any future financial obligations.
No matter what you decide, it’s important to work with lawyers and financial advisors who can assist you and your spouse in making these decisions. These advisors will come with a neutral point of view and will keep the best interests of both parties in mind.
What If An Agreement Can’t Be Reached?
Acrimonious divorces can make it incredibly difficult to resolve financial matters. If you and your spouse are unable to reach an agreement, you’ll have to rely on the court system to do it for you.
This is going to be the far more difficult route to take. Both parties will have to go to court, present their case, and then allow the court to determine how to fairly divide the assets.
This process is incredibly expensive since both parties will have to retain lawyers. Any marital assets you’ve accumulated can easily be drained by a lengthy legal process. That’s why it’s always ideal to try to come to an agreement on your own if you can.
I Want To Keep The Marital Home And Live There With My Children. How Do I Make That Happen?
When it comes to dividing your marital property, conflicts often arise in couples with children. One spouse may want to keep the home and live there with the children.
This is an option, but whether or not it can happen really comes down to whether that person can afford the mortgage. If they can, they may be able to assume the mortgage or buy the home from their spouse. That individual’s income, credit history, and the division of equity accumulated in the home will all be taken into consideration.
Let’s look at some other common scenarios that occur in divorcing spouses with children.
If Your Spouse Earns Enough Income To Qualify For A Refinance On Their Own
Let’s say that spouse A wants to keep the marital home and earns enough income to qualify for a refinance on their own. In this situation, the couple may agree that spouse A should apply for a new mortgage in their own name.
Spouse A may want to encourage spouse B to agree to leave enough equity in the home for a 20% down payment. In exchange, spouse B won’t be required to make any further mortgage payments on the other person’s behalf.
From there, both spouses can split what equity there is in excess of the 20% down payment if they pursue a cash-out refinance. From there, spouse B will sign a quitclaim deed relinquishing any further claim on the title.
Spouse A now owns the property in their name alone and is responsible for making the monthly payments on their new mortgage. It will now be up to that person to determine what type of mortgage best suits their needs and gives them the ability to make timely payments.
If Your Spouse Can’t Qualify For A Refinance
But what if spouse A wants to keep the marital home but can’t qualify for the refinance on their own? It’s always more difficult when the spouse who is moving out earns a significantly higher income than the person who wishes to stay in the home.
In this situation, spouse A may want to seek financial assistance in the form of alimony. They can also ask for child support if there are children in the marriage.
However, there are risks to this type of settlement. Even if spouse B agrees to pay alimony or child support, there’s no way to guarantee that they will actually make these payments. If that person doesn’t follow through on the agreement, spouse A may find themselves unable to make their mortgage payments.
If that happens, spouse A will see their credit take a significant hit and they could be at risk for losing their home. That’s because even though spouse B is responsible for the alimony payments, spouse A is the person listed as the mortgage borrower.
And unfortunately, this scenario is more common than you may think. Statistics show that only 43.5% of custodial parents receive the full amount of support they are due. And while statistics on on-time alimony payments aren’t kept, it stands to reason that those rates are even lower.
So, if you’re unable to afford the mortgage payments on your own, you should think long and hard about whether you want to rely on alimony payments to get you through. It may be a better idea to move into a more affordable home than to remain dependent on your former spouse.
Additional Divorce And Mortgage FAQs
Divorce raises many personal and financial questions and you should always consult with an attorney or financial advisor on these issues. However, this section will briefly address some of the follow-up questions you may have regarding your mortgage and refinancing your house after a divorce.
Can’t I Just Release My Former Spouse From the Mortgage?
If you and your spouse are in agreement that you’ll keep the mortgage, it would be nice if you could just release them from the commitment and move on. Unfortunately, it’s not that simple.
Any changes that are made to a mortgage must be approved by the mortgage holder. And while it’s possible that your lender will agree to a change, in most cases, a new mortgage will need to be originated.
What Is A Quitclaim Deed?
A quitclaim deed is a very fast way to remove one borrower from the deed. Once the quitclaim deed is signed and recorded, the spouse who was removed no longer has any responsibility for the home.
And the borrower who is keeping the mortgage doesn’t receive any type of protections with this deed. These types of changes do require the approval of your lender.
Do We Have To Tell The Mortgage Holder That We Are Separating?
When you’re going through a difficult divorce, you probably would prefer to tell as few people about it as possible. But for everyone’s protection, your lender must be informed of the situation so that your mortgage situation can be resolved.
That is true even if you’re going through a very amicable divorce where both parties are in agreement about what should happen with the marital home.
And keep in mind, many spouses have suffered severe damage to their credit scores and histories because they mistakenly relied on a former spouse to pay for the mortgage.
So, it’s never a good idea to rely on a former spouse for mortgage payments. Even though it may be uncomfortable and tedious, go through the effort to let your lender know what’s going on and come up with a solution that protects both parties.
What If My Spouse Refuses To Negotiate Over The Mortgage?
Divorce can be very challenging and sometimes, one spouse becomes determined to inflict as much damage as possible on the other. Unfortunately, they often do this by withholding financial assets or just outright refusing to negotiate over finances.
If you find yourself in this situation, you should seek out the advice of an attorney immediately. You may need to cease communications with your spouse and let the lawyers handle things for a while.
Divorce Can Be Messy – Make Sure Your Financial Standing Isn’t
Going through a divorce is difficult and it’s even more complicated when you own a mortgage. Fortunately, there are many options available to help you untangle your finances after a divorce.
In the event of a divorce, many couples will sell the home and then split the proceeds of the sale. If one person wants to keep the home and can afford the mortgage payments, they can refinance the home on their own.
However, if you decide to go this route, you should be sure that you have the income to make the payments every month. Even if the other spouse promises to pay alimony or child support, you shouldn’t count on this income in order to make your mortgage payments.
For more information about selling or refinancing after a divorce, feel free to check out the resources available in our Learning Center.