Property division during divorce involves the assignment of each spouse's rights and obligations. If a married couple owns real estate together, their divorce settlement or judgment likely will include orders regarding ownership of their property. The spouses might choose to sell their home, allow one of the ex-spouses to stay in the home or decide who will pay the monthly mortgage as part of their divorce negotiations. If one ex-spouse receives the family home, the divorce judgment often must state whether the other spouse must execute a quitclaim deed or interspousal transfer that converts the home from marital property into one ex-spouse's separate property; however, a property transfer doesn't automatically eliminate an ex-spouse's obligation to a mortgage lender.
When homeowners divorce, they often must decide how to divide their rights to the family home or other real estate. If one spouse plans to continue living in the family home after divorce, the couple must negotiate many financial issues, obligations that might include a mortgage. The spouses' divorce judgment might require mortgage refinancing to get an ex-spouse off the deed. It may be helpful for each ex-spouse to consult a family law attorney who has experience with property division.
Property Division During Divorce
Mortgage Lender's Obligations
The Federal Trade Commission warns consumers to research their rights before agreeing to property division during divorce. A divorce decree might order one spouse to apply for refinancing after providing financial compensation for the other spouse's share of equity in the property. Spouses can agree that one ex-spouse will live in the home and continue to pay the mortgage, but according to the FTC, creditors such as mortgage lenders usually don't have a legal obligation to remove an ex-spouse's name from a loan. An ex-spouse may request that a mortgage lender change the mortgage to become an individual obligation rather than a joint obligation; however, no federal or state law requires that the lender comply with the request.
Refinancing a Mortgage After Divorce
A mortgage lender has a right to ask that an ex-spouse refinance a mortgage before the lender changes the mortgage to an individual obligation after divorce. After completion of the refinancing process, the lender transfers the loan to the name of one spouse -- usually the ex-spouse who retains ownership of the property. Refinancing might include additional costs. According to a 2011 New York Times article, a mortgage lender might charge refinancing costs that total 3 to 6 percent of the property's outstanding loan principal amount. If a divorce settlement requires refinancing of a mortgage, the ex-spouse who keeps financial responsibility for the mortgage should have the divorce decree also require a transfer between spouses, which usually gets one ex-spouse's name off the deed.
Release of Liability
If a divorce results in a transfer of the property's deed to one ex-spouse as an individual, spouses who'd like to avoid refinancing might consider asking the mortgage lender for a release of liability. If granting a release of liability, the mortgage company removes one spouse's name from the loan without refinancing. To qualify for a release of liability, the spouse remaining on the mortgage often must undergo a credit check and show the financial resources necessary to meet mortgage obligations independently. As with refinancing requests, however, a mortgage lender doesn't have a legal obligation to grant a request for a release of liability.