What Happens to a Mortgage in a Divorce?
Divorce can be very complicated and stressful. And each divorce is different.
If you live in California, Washington, Arizona, or Texas, the home in a marriage is community property. This means in these states, a property purchased during a marriage belongs to both spouses, even if only one spouse is named on the mortgage.
So, your spouse can claim ownership even if you are the only one on the mortgage. Creating an interspousal document during a house purchase is advisable to alleviate some of the community property issues that may arise. This should be discussed with your attorney.
What about the mortgage?
These are three options that could be used in a divorce:
1) Sell the house, pay off the mortgage, and share the equity between the two spouses. This is usually a last resort for many couples because it means both spouses must move. Your equity position should be at least 10%+ from the value you bought the house at because of the cost of selling.
2) The house can be refinanced so that only one spouse is responsible for the mortgage. But that person will have to qualify for the refinance. Income-to-debit ratios and credit will be used, and the property will be appraised at the new value. The interest rate and the payments will change. If the refinance is being done to buy out the ex-spouse, there must be enough equity in the property to accomplish the buyout. This is usually negotiated through attorneys.
3) Keep the house and mortgage as is. But this can have some risks. Both spouses would remain on the loan and title. Both would be liable for the mortgage. There is a risk of missed payments and the ability for one of the spouses to buy a new home in the future.
Divorce is a difficult problem. Talking to your attorney about what is best for you is important.
If you have any questions, please call me.
Mary Ann Edwards – Re MX College Park – 562-544-0449 – RE Lic # 01103542