Is the Loan Value of a House Divided in a Divorce?

Some states may divide loan proceeds and loan debts during divorce.

Whether the loan debt remaining on marital property or proceeds upon the sale of the marital home is split equally depends upon whether the spouses reside in a marital community property state or an equitable distribution state.

Effects

If divorcing spouses do not have a property settlement agreement or prenuptial agreement contemplating the property division at divorce, then courts provide a judicial determination of how to divide the marital property between spouses.

Geography

Marital property is all property the spouses acquired during the marriage. Separate property belongs to one spouse. Most jurisdictions follow the common law doctrine of equitable property distribution, and courts equitably divide the home's value if both spouses' names were on the deed. If the deed lists only one spouse, then the home is the separate property of that spouse. In community property states, the rules are different. These minority jurisdictions divide property equally, regardless of whether only one spouse's name is on the deed.

Significance

Courts divide debts the same way if the couple incurred them during the marriage. Circuit court judges within state courts retain discretionary powers to consider the economic earning potential of the parties and duration of the marriage. Courts can also consider whether spousal fault.

References

• Nolo: Who Owns What?

Resources

• Find Law: ABA Family Legal Guide