The Home Buyer's Korner

Information presented should be used for educational purposes only.

April 25th, 2015

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Divorce & Your Mortgage

Happily DivorcedIf you find yourself in the process of a divorce after you’ve purchased a home, you and your soon to be ex-spouse need to decide if one of you is going to remain in the home or if it will be sold.

If your spouse decides to remain in the home and you move out, the divorce decree does not automatically remove your name from the mortgage. You will still be held liable for making payments on the home or be considered to be in default if your spouse lets the home go into foreclosure.

To avoid this unpleasant scenario, you will have a number of options. First, the spouse who is leaving can “quit claim” their interest in the home to the one who is staying, in exchange for their ½ equity or a “marital lien” against the home for their half of the equity. You should also insist that the remaining spouse refinance the mortgage in their own name, if possible, to eliminate the possibility that a late payment could adversely affect the departing spouse.

You also have the option of selling the home or having one spouse take out a second mortgage to have the funds available to buy out the departing spouse. These home finance issues can be complicated, so contacting a mortgage professional with experience handling divorce situations is essential.

You should know the financial impact of dividing or selling the home several months before you enter into settlement discussions with your ex-spouse and lawyers representing each of you. Even if your attorney does bring up the subject of financial obligations regarding your home, most do not have enough experience in real estate proceedings to give you adequate advice. This is where it comes in handy to also work with a professional in the home finance industry who can advise both you and your lawyer.

You must understand several aspects of home finance before you sign the papers to formally end your marriage. This includes knowing what to do if both of you want to stay in the home and understanding how this process will affect your cash flow, net worth, and implications on your future tax returns.

The end of a marriage is stressful for everyone involved and it can be easy to overlook learning all you can about post-divorce finance. However, you need to take steps to protect your credit now.

When you apply for new credit in a year or two and your name is still on the deed to your old house, it could negatively affect you. Hiring a real estate specialist trained in the analysis of home mortgages will help you to avoid costly mistakes. Together, you can come up with a post-divorce financial strategy that you can bring to your accountant and attorney to help you plan a successful financial future.


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