If you own a home and you are getting a divorce, the chances are that either you or your spouse will need to remove one person from the mortgage. This can present a challenge depending on your circumstances, but it is a very important step that many divorcing couples do not think about.
Some people have a mortgage in one spouse’s name and some have it in both spouses’ names. If you are the spouse responsible for the mortgage note alone and you are awarded the house, then this may not be as applicable to you. Here are some issues to consider when awarding a home in a divorce:
The court cannot bind a third party with a divorce decree.
The lender isn’t a party to your divorce so the judge can’t tell them what to do. This means that if you are both on a mortgage note and you agree (or a judge decides) that one of you gets the home, that doesn’t mean that you are no longer obligated for the mortgage. This is also true if your spouse’s name is on the mortgage and you are awarded the home. The order isn’t enforceable against the lender if they decide to go after one or both parties for a default.
Get your name off the mortgage note if you aren’t awarded the house
If you do not get the home and the other person is responsible for the payments in the divorce but your name is on the note, then you need to have it removed. If you don’t, the other party may default on the mortgage and you will be on the hook for the payments. This is especially true if your name is the only name on the mortgage note and the other party is awarded the home.
Work with your lender before the divorce is final
Don’t leave this step until after the divorce is final. You need to meet with a lender to make sure that you are protecting yourself and your financial future. Get a better perspective on whether you can remove your name or the name of your spouse and how this may be accomplished. Some lenders will allow a spouse to assume the mortgage and others may require a refinance. Regardless, resolving this issue is made simpler when you have this information before you award the home.
Come up with a plan if one party defaults
If there is a plan to refinance or remove your name or your spouse’s name from the mortgage after the decree is final, then you need to make sure you have recourse if things don’t pan out. Sometimes one spouse believes they can be successful at removing their name but in the end it doesn’t happen. Or if one person thinks they can afford the house and then find out later it isn’t’ feasible, they could default and leave you holding the bag.
There are a lot of issues to consider when divorcing and dividing real property. Make sure you are getting the professional advice you need to get it right the first time.