Often there is confusion surrounding a marital home in a divorce case. There are two different things to consider:
- the deed to your home – i.e. who has the legal right to live there, and
- the mortgage on your home – i.e. who has the legal obligation to pay for the home.
At a final hearing, a judge can decide who (if anyone) will be able to live in the marital home. For example, suppose that the Husband and the Wife each want to remain in the marital home with their child. At the final hearing, the judge decides that the Wife can stay in the marital home with the child. In order to make the home the Wife’s property rather than the now-divorced couple’s joint property, the judge could order the Husband to sign a quitclaim deed that would transfer any legal interest he had in the home to his ex-Wife. The judge could also transfer the legal ownership of the home from the couple to the Wife as part of the final judgment.
This is not the end of the analysis of the marital home. Typically, the party who is awarded the home has to pay for the home. So, in my hypothetical, the Judge would require the Wife to make the monthly mortgage payments. However, since the mortgage company is not a party to the divorce case, they are not bound by the judge’s order that the Wife makes the payments. If the Wife fails to make the mortgage payments, they can sue her – but they can also sue the Husband. (This scenario assumes that the Husband and Wife were both obligated to pay for the home under the terms of the mortgage). This puts the Husband in the unfortunate position of having his credit affected by the actions (or inaction) of the Wife.
In order to avoid this scenario in a divorce, it is important to consider the possibility of selling the home or refinancing the mortgage in order to remove a spouse’s name from the mortgage. When considering what to do with a marital home, think of the following points:
Selling the home is often the best option.
This is often the best option since it results in a clean break. Selling the home removes a large financial connection between the Husband and Wife. Even if you assume that the party remaining in the home make all the payments, the other party could find it difficult to buy a home since they are still legally obligated to pay the mortgage of the former marital home. This is not a popular situation.
Also included in this option is a re-financing of the mortgage into one party’s name alone. Essentially, this is still a sale of the home – but only to the person who is living in the home.
Can you afford to stay in the home?
When possible, it is important to consider a re-financing prior to the end of your case. Both parties may agree on a re-financing of the home, but that does not mean that you will qualify for the loan from a bank.
Is there any equity in the home?
All too often, you may discover that after a sale of your home, you still owe the bank. This situation is called being “upside-down” or “underwater.” In this situation, it is sometimes better for one of the spouses to remain in the home – and paying for it – rather than selling the home and obligating each spouse for thousands of dollars in debt. It may be better to continue your financial connection to your ex rather than incur a huge debt. Hopefully, the value of the home will eventually increase enough so that it can be sold without incurring the additional debt.
Due to the emotions and volume of decisions that need to be made in a divorce case, these mortgage issues often get overlooked. Please consider consulting with a family law attorney about these complicated mortgage issues.