Real Estate & Divorce Blog: What Happens to the Mortgage After a Divorce?

1. Who Is Responsible for the Mortgage After Divorce?

When you and your spouse separate, the mortgage responsibility doesn’t just go away. If both of your names are on the mortgage, you're both still responsible for the loan—even if the divorce agreement grants one person the house. This is because the lender doesn't recognize divorce decrees, only the names on the loan.

If the house is awarded to one spouse, they are expected to assume responsibility for the mortgage. However, if the ex-spouse doesn’t pay, the other party is still legally liable unless a court order or refinancing agreement indicates otherwise.

2. Can the Mortgage Be Transferred to One Spouse?

In some cases, the mortgage can be transferred to the spouse who will keep the home. This requires refinancing the mortgage into that spouse’s name alone. Refinancing can be a good solution for someone who is looking to stay in the house, but it comes with its own set of challenges:

• Creditworthiness: The spouse wanting to keep the house must prove that they can afford the mortgage on their own. This includes having a good credit score, steady income, and a manageable debt-to-income ratio.
• Equity Considerations: During refinancing, the value of the home and its equity play a role. If there is a significant amount of equity in the home, the refinancing spouse may have to pay the other spouse their share of the equity.

Refinancing can also be expensive and time-consuming, and not everyone will qualify for a new mortgage. If refinancing isn’t an option, other solutions, like selling the home or agreeing to a different distribution of assets, may be necessary.

3. What Happens if the Home Is Sold?

If the couple decides to sell the home, the proceeds are typically divided according to the divorce settlement. The mortgage must first be paid off with the sale of the property. Any remaining money after the mortgage is paid off (and after covering any real estate commissions, taxes, etc.) can be divided between the parties.

Selling the home may be a good option for couples who both want to move on, but there can still be emotional challenges to letting go of the family home. If the home has increased in value, the sale may provide a financial boost, but if the house has decreased in value, it may result in a financial loss.

4. What if One Spouse Can’t Afford the Mortgage?

In some cases, one spouse may want to keep the house but can't afford the mortgage on their own. In this situation, several options are available:

• Sell the home: If neither spouse can afford the home alone, selling it may be the best option. This allows both parties to walk away without the burden of debt.
• Agree to a buyout: If the spouse who wants to keep the house can’t afford it outright, the other spouse may agree to a buyout. This typically involves taking on a larger share of other marital assets in exchange for the property.
• Consider other financial solutions: If refinancing or selling the home isn’t ideal, mediation or further financial restructuring may help find a compromise that works for both parties.

5. What Happens if the Mortgage Isn’t Paid?

If the mortgage is not paid by either party, both spouses can suffer financially. A missed payment can negatively affect both parties’ credit scores, making it more difficult to buy homes or obtain loans in the future. If payments aren’t made for an extended period, the lender may foreclose on the home, leading to the loss of the property.

In cases where the mortgage is in both spouses’ names, both individuals are still legally liable for the mortgage payments. Even if the divorce decree specifies that one spouse is responsible for the mortgage, the lender is not obligated to follow the divorce settlement unless the mortgage is refinanced or paid off.

6. How to Protect Your Credit After Divorce

If you and your ex-spouse remain on the same mortgage after the divorce, it’s important to monitor your credit and communicate about payments. If one party fails to pay, it will affect the credit of both individuals.

Here are some tips to protect your credit:

• Refinance as soon as possible: If one spouse is responsible for the mortgage, refinancing as soon as possible removes the other person’s name from the loan and eliminates any risk of a missed payment affecting both parties’ credit scores.
• Keep communication open: If you’re still sharing a mortgage, make sure you stay in touch with your ex about payment deadlines and responsibilities. Both parties should make it clear who will handle each payment.
• Monitor your credit reports: Regularly check your credit report to ensure the mortgage is being paid on time. This can help you identify any problems early.

7. Conclusion: Understanding Your Mortgage During Divorce

Dividing assets in a divorce is never easy, and dealing with real estate and mortgages can be particularly tricky. It’s important to take a close look at your financial situation, communicate openly with your ex-spouse, and consider your long-term financial goals when deciding what to do with the family home and mortgage.

Whether you're keeping the house, selling it, or refinancing, understanding your mortgage options will help you make informed decisions that protect your financial future. Consulting with a financial advisor, real estate agent, or divorce lawyer can also be invaluable in navigating these decisions.

If you find yourself unsure about what to do next, it’s worth reaching out to professionals who specialize in divorce real estate. They can guide you through the complex process and help you make the best decisions for your specific situation.