Shared Mortgages Create Divorce Dilemmas

A home mortgage is often the largest single purchase a married couple can make together. When the couple faces divorce, the problems involved with a shared mortgage can be just as daunting. In many cases, the couple will agree to sell the house and split the profits. However, when one spouse wants to live in the house after the divorce, that spouse must frequently re-submit their mortgage applications to determine if they can maintain the monthly payments.

Divorce, Mortgage and Financial Complications

The spouses in a divorce who choose to stay in the house face some unenviable choices. If they have the means to pay off their ex-spouse’s share of the mortgage, they will need to qualify for the current mortgage based off their individual financial status. If they need to use the equity in the shared home to pay off the ex-spouse’s share, they then lose that portion of the equity and must repay the loan. In either case, the ex-spouse’s removal from the mortgage can lead to serious financial consequences.

Divorce and Home Equity

If the spouse who chooses to stay decides to use the home equity to pay off the ex-spouse’s share, they may end up losing the house they sought in the divorce to the bank, rather than to their ex-spouse. The loss of equity in the divorce settlement could lead to higher mortgage payments. Kathleen B. Connell, a family law lecturer in Atlanta, told the New York Times that, if the ex-spouse who stays in the house defaults on the mortgage, “the mortgage company is going to sue them both, regardless of what the divorce agreement says.”

Divorce and Mortgage Preparation

Financial planners advise couples going through a divorce to determine if they can meet the expenses involved in maintaining the marital home after the marriage dissolves. These expenses can include the mortgage, property taxes, utilities, lawn maintenance, homeowners association fees, and other costs. Cynthia Thompson, the founder of Divorce Planning Solutions, told the New York Times that divorcing couples should “flesh out all of their expenses,” instead of spending their time and energy “arguing, litigating (and) fighting” through the divorce process.

Divorce and Financial Planning

Couples going through a divorce may consider counting on spousal support and/or child support payments in their individual mortgage applications. These applicants should understand that lenders often require proof of at least six months’ worth of such income before they can close the mortgage. Federal mortgage programs, such as Fannie Mae, require at least three years of continuing income from the loan application date. While an experienced attorney can be an invaluable ally in a divorce case, a financial planner can help with questions surrounding home mortgages.

Source: New York Times

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NOTE: This post is a news story and does not imply an endorsement of Arguello Law Firm by any concerned parties mentioned herein.