Marriages may not always last for decades, but some debts do. When a married couple who owns a house divorces, the mortgage debt often exists for longer than the marriage. During a divorce, couples need to be aware of the long-term consequences of their mortgage before deciding on what should happen to the house.
Mortgages and Divorce
Your marriage and your mortgage are, for practical purposes, unrelated to each other. Divorce does not clear either spouse of the obligation to make payments on the house. Whoever has signed the mortgage documents will still be responsible for payments, even if one of the spouses moves out or can no longer make payments on their own.
Many people, especially those who try to complete their divorce without an attorney, mistakenly believe that a quitclaim deed or similar instrument can transfer the mortgage from one spouse to the other. This could not be further from the truth. A quitclaim deed is a document which transfers a person’s ownership of a piece of property to another person. It cannot change the contract made with the bank who owned the mortgage. So, a wife who quitclaims her interest in a house to her husband has lost all rights to the ownership of the property, but is still responsible for making payments against the mortgage debt.
Divorcing couples generally have three options when it comes to their mortgage: sell the house, refinance the mortgage, or continue making payments.
Selling the House
When neither partner wants to keep the house, or if neither partner can afford to keep the house alone, couples will usually sell the property.
When selling a house because of divorce, the couple must remember that the bank gets paid first. Then, if they sell the house for more than what they owe, they must decide how to divide the proceeds; if the house sells for less than what they owe, they will have to decide how to divide the remaining mortgage debt.
Refinancing the Mortgage
When one spouse can afford to keep the family home, the other may agree to turn over the property in the divorce settlement. However, as discussed above, the divorce decree alone cannot relieve a person of their obligations under the mortgage.
In these situations, keeping the house may be conditional on refinancing the mortgage. If the bank which owns the mortgage agrees to re-write the contract and remove the other spouse, then the person who has left the house will no longer be obligated to make payments.
Refinancing the mortgage is entirely up to the bank. If the bank refuses to release a spouse of his or her contractual obligations, then the parties may have to look at other options.
Continue Making Payments
If the couple agrees for whatever reason that both partners should remain on the mortgage, then each will have an obligation to continue making payments. This arrangement usually only works when the divorce is amicable, and is often a temporary solution while the house is on the market or is waiting to be refinanced.
One of the pitfalls of this arrangement is that there is little recourse if a former spouse stops making payments. When both spouses are on the mortgage, each person could be harmed if the other fails to pay the bank. Credit scores can plummet, and the house could go into foreclosure. For that reason, the divorce settlement or decree should stipulate a course of action if one partner can no longer make payments.
Fairly and accurately dividing property and debts in a divorce case often requires the help of a skilled Washington family law attorney. The lawyers at Pacific Northwest Family Law have many techniques at their disposal to help divorcing couples split marital property in an equitable way, and achieve great successes using mediation, collaboration, and other dispute resolution methods.
For help with strategies for dividing marital property in a divorce, just call 509-572-3700.