If you are facing divorce, you are not alone. It’s estimated that nearly 40 to 50% of marriages end in divorce.
You’ll have many questions over the next few months, including:
- How do we divide our assets?
- How do we file taxes now that we are split up?
- What happens to a house in a divorce?
Your house is the biggest asset that you have with your spouse. Understanding your options is a vital step to a fair and smooth division of property.
What Happens to a House in a Divorce: Understanding your Rights
Legally speaking, a divorce doesn’t automatically remove someone’s name from the mortgage. Even though you are no longer legally married, the bank holds you both responsible for the payments on the mortgage. Most lenders refuse to take the spouse’s name off the mortgage without refinancing.
If your spouse is keeping the house, your credit will be ruined if he or she defaults on the mortgage. You will find it very hard to purchase a new property while your name is attached to the mortgage.
Your choices are to attempt to assume the mortgage, refinance under one spouse only, or sell the property. What happens to a house in a divorce depends on how smoothly you can handle your separation.
Before deciding what to do with a house in a divorce, one or both spouses should get a home appraisal. A professional appraisal tells the couple how much the house is worth. Appraisals can cost between $350 to $500 on average.
After the appraisal, the couple can decide if it’s worth keeping the property or if it makes better sense to sell it. It’s possible the house will need big money repairs before it would be approved for a loan. The property might also be upside down in its existing mortgage.
Sell or Refinance if Your Mortgage is Upside down?
If the property is upside down, you will find it very difficult to get it refinanced. You may also find it hard to sell the property. The choices are difficult.
One choice for upside down mortgages is a short sale. A short sale is when the property sells for less than the balance of the mortgage. A short sale needs approval by the lender. In some cases of a short sale, you and your spouse are responsible for the difference between the sale price and the mortgage balance.
A short sale will have a significant negative impact on both spouses’ credit reports.
A short sale should be the last option. Even if the house is upside down, there are government programs available for refinancing the property.
Selling the House in a Divorce
The easiest way to get out from under the mortgage is to sell the property. Profits from that sale are split between the spouses.
A judge can force the sale of the property if the terms of the divorce decree are not met.
Refinancing the Loan
When the couple decides the property should stay with one spouse, he or she is required to refinance the mortgage. This removes the other’s name from the loan. The loan will need to be completely refinanced based on the eligibility of the spouse keeping the house.
Meeting all the requirements for refinancing alone can be difficult. If it can be done, it is a good way to keep the property for the children.
After refinancing, the spouse who gives up the property must sign a “quitdeed” claim. This removes him or her from any future claims to the property, including proceeds from a sale.
Keeping the Property
Sometimes selling the property or refinancing isn’t possible. If this is the case, the couple may choose to keep the house until they can make other arrangements.
If this is the best option for you, make sure your lawyer is very thorough in the separation agreement:
- Who will live at the property?
- What time limits are there on refinancing or selling the property?
- Who will be responsible for the mortgage payments?
- How are major repairs to the property handled?
Some couples may choose this option so that children can remain in their home. This may be a good choice if the couple has pets or other special living considerations.
Some families keep the home and opt to divide their time with the children at the home. The spouses will share another apartment for use by the spouse who is not with the children. This is a rotating schedule, called Bird Nesting, and will need special legal considerations.
Can a Spouse be Forced to Refinance?
No one can force a bank to refinance a loan, no matter how badly one spouse wants to leave the mortgage arrangement. A judge won’t order a spouse to pay a higher mortgage payment if it will cause him or her an undue financial strain.
A judge can force a sale of the property if the terms of the divorce decree are not met within the time frame of the decree. The spouse attempting to refinance should prove that he or she has been trying to get a new mortgage.
If you are attempting to refinance, keep records of each lender you speak to. Note the reasons you didn’t qualify for the refinance. A judge will not hold you in contempt of the decree if you are making an attempt to comply, but may still order a sale of the property.
Non Traditional Separations
Couples in nontraditional arrangements may also find themselves in difficult situations. Unmarried couples who own properties together need to understand what their rights are. The rules of what happens to a house in a divorce apply for nontraditional separations as well.
Always Seek Legal Advice
Even when a couple tries to make the divorce as painfree as possible, legal issues will arise. Always protect your interests by seeking legal counsel. Your lawyer will help you decide what happens to a house in a divorce, as well as other complex issues.
Are your assets protected? Contact our legal team today to get the guidance you need for every step of your divorce.