Mortgages & Divorce

By The Law Offices of Ronald H. Kauffman of Ronald H. Kauffman, P.A. posted in Equitable Distribution on Tuesday, November 10, 2015.

It’s real estate tax time, and deciding how to equitably distribute the marital home in a divorce can be a headache – especially when both spouses are on the mortgage.

As the New York Times recently reported, when there is equity in the home, each spouse typically wants to take a share as part of the settlement agreement.

But if one person wants to remain in the home, rather than sell it and split any profit, then that spouse will likely have to qualify for a mortgage on his or her own.

There are a lot of issues involved in the marital home. I’ve written before about property divisions when the housing market was down. Now that the housing market is in recovery, different issues arise.

Spouses who choose to stay in the home may have to refinance the mortgage to cash out enough equity to pay off their soon-to-be Ex. But even a spouse who has the financial resources for a buyout will still have to get a mortgage in his or her name.

The spouse walking away from the house, not only wants their share of the equity in the property, but must get their name off the mortgage so their credit score won’t reflect the debt, and so they won’t be liable for any non-payment.

Once your name is on the mortgage, you are jointly and severally liable for the entire debt amount. The mortgage can tie up your credit, making it difficult to qualify for another mortgage, or even a car loan.

Worse still, if there’s a default or late payment of the mortgage – you are not only going to be sued – your credit report score could drop considerably, even though you are not at fault.

In order to determine who gets to keep the house, you must consider who qualifies for a new mortgage on their own. If you do, could you afford all the other expenses associated with living in that home: taxes, insurance, utilities, lawn, pool, maintenance etc.

As the New York Times reports:

This preparation should happen early on in the divorce process, but too often people are too busy arguing, litigating, fighting, and having no idea of the whole picture.

A few things to consider: find out from a mortgage broker how much mortgage you could afford early on in the case. Spouses planning to count child support and alimony as income to qualify for a mortgage should know that lenders will require proof of at least six months’ receipt of that income before closing. In addition, there are other Fannie Mae guidelines.

The New York Times article is available here.