Some couples remain married for so long that when they divorce, they have already paid off their homes entirely. However, it is quite common for spouses to decide to divorce while there is still a substantial balance due on their mortgage.
The process of equitable property distribution can even increase the principal balance of a mortgage if the spouse staying in the home withdraws equity to compensate the other spouse. Those contemplating divorce often have questions about their mortgages.
What are some of the options for addressing a mortgage during a divorce?
Refinancing
The simplest and most common solution for addressing the mortgage in a divorce scenario is to refinance. The spouse remaining in the home refinances the mortgage to remove the other spouse from the note.
They may withdraw some of the equity as part of that process to compensate the other spouse or pay off shared marital debts. High interest rates and the challenges of qualifying alone can make refinancing challenging for some.
Assuming the mortgage
Some mortgages are assumable. There is language built into the paperwork that allows one party to take over a mortgage initially issued to others. One spouse with a qualifying credit score and adequate income can sometimes assume a mortgage initially issued to both spouses without refinancing and changing loan terms, such as the interest rate.
Sharing the mortgage
In cases involving a financially dependent spouse or minor children, sometimes divorcing spouses agree to share responsibility for the mortgage. Particularly in cases where they might explore a birdnesting custody arrangement, such solutions can be appropriate, provided there are protections in place for how the spouses handle the home in the future.
Planning for the best way to address high-value assets during property division proceedings can help spouses protect themselves. There may be several ways to handle a mortgage and the real property acquired with the mortgage during a divorce.