What Happens to a Mortgage During a Divorce?
Getting divorced is stressful, and problems related to a mortgage and other issues with the house can compound this stress. Who keeps the house is often one of the most contentious issues in a divorce. Parties to divorce can plan better for life after the divorce and perhaps reduce some of the stress by understanding the issues related to the mortgage.
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During Separation
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When a couple separates, nothing changes about the mortgage. If the names of both parties are on the mortgage, both equally share responsibility for the mortgage payments regardless of who stays in the home. Of course, couples can agree that one or the other will make the payments, but this does not remove the other's legal responsibility to the mortgage holder. Any agreement regarding the mortgage should be in writing. Though the agreement does not change the mortgage, a properly executed written agreement will create a legal agreement between the parties.
Divorce Order
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When the parties divorce, the court will rule on the separation of property. It is generally in each party's best interests to agree to a settlement, but this is not always possible. When the court makes a ruling on the divorce, many people believe that order changes the responsibility for the mortgage. This is not true. Though the court will typically order that one party or the other will occupy the house, the party receiving the house will then have to arrange new financing for the home or make some other arrangement. If the person receiving the home defaults on the original mortgage payments, the mortgage holder can pursue both parties until the original mortgage is paid.
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New Financing
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When the court order stipulates which person receives the house, that person generally will then have to arrange new financing for the loan. The problem is that with the divorce, the person receiving the home may not have the income required to qualify for the loan by herself. In this case, the parties may work out some arrangement, or the court may order it, such as alimony or increased child support to help the person with the home qualify for the new loan. Another option for divorcing parties is co-ownership. In co-ownership, both parties continue to own the home and remain responsible for the mortgage.
Legal Representation
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Though often parties in a divorce can agree to the terms of the divorce without arguing the case in court, mortgages and other serious financial entanglements can require the services of an attorney. Even in an amicable divorce, the parties may want to sit down together with an attorney to review the handling of the mortgage and related issues to make certain that the agreement settles all possible problems. In cases where the parties cannot agree, it is especially wise for each person to hire an attorney.
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References
- Bankrate.com: Keeping the House In a Divorce; Amy Crane; June 30, 2006
- Bankrate.com: How Divorce Affects a Mortgage; Don Taylor; August 20, 2001
- WalletPop: Mortgage Confidential: Why Lenders Want To See Your Divorce Decree; David Reed
- Realty Times: Loan Obligations Continue Despite Divorce; Benny L. Kass; September 23, 2002
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