When a couple gets married, their finances become intertwined. This includes not just the property they own, but also their obligations to repay certain debts. Just as a couple’s home is often their most valuable asset, the mortgage they took out to finance it is often their largest source of debt. In the event of a divorce, the home’s equity and the outstanding mortgage balance will both significantly impact the division of marital property.
As you decide how to handle all of your assets and debts in your divorce, you should give special consideration to your home mortgage. If you and your spouse are willing to work out an agreement, you may have several options to either reduce the debt or allocate it fairly.
Eliminating Mortgage Debt by Selling Your Home
Often, the simplest option for handling your home and the associated mortgage in your divorce is to sell the property. If the housing market is strong, you may be able to completely eliminate your mortgage debt by selling your house, perhaps with revenue left over to distribute fairly between you and your spouse. Of course, this means that neither of you will be able to continue living in the home, but this may be a good option if you are both looking for a fresh start.
Refinancing the Mortgage
If you or your spouse wants to continue living in your home after the divorce, the person who keeps the property will likely need to assume full responsibility for the mortgage and reimburse the other spouse for their share of the equity. Usually, refinancing the mortgage in one spouse’s name is the most effective way to do this, as long as that spouse has the credit, income, and assets to qualify for the loan on their own. Refinancing ensures that the other spouse is not still liable to creditors, and it may even result in a more favorable interest rate for the spouse who keeps the home.
Setting Up a Payment Agreement
A less conventional arrangement is one in which you and your spouse remain as joint owners of your home for some time after the divorce. This may be a good choice if, for example, you want to continue raising your children in the home they are accustomed to. However, you should be certain that you and your spouse can trust each other to maintain this arrangement, and it is a good idea to include provisions in your divorce agreement regarding how you will share mortgage payments and other expenses related to the home....