Table of Contents
If you and your spouse have decided to split up and you own a home you are still financing, it’s important to know your financial obligations. Truth is, if both parties are on the mortgage loan, they remain responsible for paying off that debt.
Fortunately, there are steps each spouse can take to safeguard their finances and credit in this situation. Read on to learn the facts and what you can do if you or your ex-partner want to be removed from the mortgage.
Why the mortgage must be changed
If you and your divorcing spouse are both listed on the mortgage loan, you are equally responsible for repayment of that loan. If you or your former partner plan to keep the home, that means the mortgage loan must be changed or you risk being liable for the remaining debt.
Even if you no longer live in that home, you are required to pay that mortgage debt until your name is removed from the loan.
“Let’s say you are divorcing but remain on the loan while your spouse keeps the house. You choose to stop paying your share of the mortgage, but so does your spouse. In this case, the lender can come after each mortgagor spouse for the entire amount of the loan and can sue you even if you no longer live in the marital property or your name is no longer on the title,” explains attorney Marina Shepelsky. “You are still on the hook to repay the debt even if you are divorced, so long as you remain a borrower on the marital loan. You will still owe the lender the entire amount of the principal of the loan, plus interest and collections and attorney fees. This may force you into bankruptcy and ruin your credit history.”
Or, imagine your ex-partner turns your former home into a rental property, but a tenant is seriously injured due to poor maintenance.
“Despite you not living there or having a say in the property management, your legal tie to the mortgage means you could be held partially liable for damages,” cautions divorce lawyer and Certified Family Law Specialist Erin Levine.
Here’s another nightmare scenario: Say your ex-spouse keeps the home after the divorce; your name is off the deed but not off the mortgage. Your ex changes her will to leave the property to her children from another marriage. Then, your ex-spouse suddenly dies.
“Now, you have no house or asset but you are 100% responsible for the mortgage,” says Rueschemeyer. “This is an actual case I represented.”
For these and other reasons, your divorce lawyer must work to ensure the divorce settlement safeguards your interests. If one spouse plans to remain in the home, the other spouse must be taken off the title as a co-owner and removed from the mortgage loan. There are three ways for the latter to happen:
- The spouse remaining in the home must refinance the mortgage loan into a new loan with only their name on it.
- The mortgage must be paid off by selling the home or prepaying the loan (making accelerated payments).
- The lender agrees to allow an amendment or modification to the mortgage note, also called an “assumption of the note.” “This allows your ex-spouse to assume the mortgage in their name only, keeping the same mortgage terms as they had before, which is cheaper and easier than doing a refinance,” says divorce attorney Julia Rueschemeyer. “However, many lenders won’t allow this.”
Other reasons to get off the mortgage
There are other good reasons you want to be separated from your ex-spouse’s mortgage, too.
“Your continued association with the mortgage can negatively affect your debt-to-income ratio, impeding important future financial decisions like securing a loan for starting a business,” continues Levine.
What’s more, if your ex chooses to sell the home after you move out, you remaining on the mortgage could complicate the sale. “Disagreements over the sale price or terms can lead to legal disputes, prolonging divorce proceedings and escalating legal costs,” Levine says.
Also, remaining legally tethered to a home with your former partner can prevent emotional closure and cause additional stress.
» MORE: See today’s refinance rates
How a divorce can complicate these matters
But not so fast: Getting your name “removed” from a mortgage is not as easy as you might think, particularly when a divorce is pending.
“Many states’ courts have standing orders that prevent parties from making significant changes to their financial obligations or assets during a divorce,” Joshua Northam, a family law partner at Shackelford, Bowen, McKinley & Norton, says. “Family courts often enter ‘status quo’ or ‘standing’ orders to ensure that the spouse who has been paying the bills continues to do so until the court can determine who gets the asset and until it decides who will remain financially responsible for it.”
In other words, you may be legally required to continue making mortgage payments until the home is awarded to you or your spouse and the responsibility for the mortgage debt can be restructured.
“Failure to pay a mortgage can be a spiteful way to punish or harass the other spouse. Taken to the extreme, late payments can lead to impaired credit or even foreclosure,” warns Northam. “At the very least, both parties may have to incur significant legal fees to enforce one spouse’s obligation to pay the mortgage in order to protect the asset until it is divided by the court.”
Keep in mind that some divorcing spouses choose to stay on their mortgage for a set period to provide stability for their children and/or their spouse who will continue to live in the home; the other spouse may need extra time to refinance, assume the home loan, or capitalize on another avenue to divide home equity, such as a sale-leaseback or home equity investment.
“Another option I’ve seen some clients choose nowadays is to defer the sale of the residence for a certain number of years, provided the live-in spouse does not default on the home loan,” Levine adds. “I’ve also seen clients convert their primary residence into a co-owned investment property.”
The process of getting one name removed from the mortgage
Again, the only ways to get you or your former spouse’s name off the mortgage is to either refinance the loan, pay off the home loan by selling the property or paying up the remaining mortgage debt in full, or getting the lender to agree to a mortgage note modification.
“Some lenders will not allow this process to begin until a final order is entered by the divorce court,” says Northam.
If the court awards your ex-spouse the home as their sole property, they will often give that winning spouse several days or months to complete a refinance. During that process, the other spouse can negotiate or ask the court for some protections, such as a deed of trust to secure assumption.
“An assumption deed of trust is a special kind of deed that allows the divested spouse the ability to take over the property in the event of a mortgage default to protect the divested spouse’s good credit,” Northam notes. “The divested spouse may also have the right to seek the appointment of a receiver to sell the property after some time if the receiving spouse is not able to refinance the mortgage punctually.”
Consult closely with your divorce attorney on how to best proceed. They may recommend that you contact your mortgage lender right away and explain that you are getting divorced and want your name removed.
“If you or your ex-spouse are allowed and agree to refinance the mortgage for a home that one party will keep, both spouses will eventually sign documents consenting to the changes,” says personal finance Andrew Lokenauth. “The refinance lender will process the request and notify the three credit bureaus of the updates to each spouse’s account.”
Get your name off other shared accounts, too
It’s also smart to get your name removed as soon as possible from any financial or credit accounts you share with your ex-partner.
“As with a mortgage loan, you are still legally responsible as a joint account holder for shared credit cards or other loans or accounts following a divorce. If you remain on these accounts and your ex misses payments, it will harm your credit history and credit score,” Lokenauth says. “Closing joint accounts ensures you have no ongoing liability for debts incurred solely by your ex-spouse after a divorce.”
Be aware, though, that any debts on these shared accounts or loans need to be paid off before they can be closed.
“Like a mortgage, credit card obligations are contractual obligations between the lender and borrower, and a divorce or family court has no meaningful legal authority to direct the lender to modify the debt obligations of these borrowers – married or not,” adds Northam.
What to anticipate with your next mortgage after divorce
If you plan to apply for another home loan after your divorce, expect that it may be trickier to get approved.
“Mortgage lenders may need more documentation of income and assets, as they consider a divorce a slightly higher lending risk. Having good credit is especially important,” suggests Lokenauth. “The lender will thoroughly review your finances to prove you can independently qualify and repay a loan on your own after a divorce.”
Also, even if your credit is in good shape, it will likely be harder to qualify for a mortgage loan as a sole borrower/applicant than it was as a co-borrower with your former spouse.
“That’s because the lender faces a greater risk lending to a one-income household. Plus, a divorce typically incurs debts, including expensive legal fees, which makes you a worse credit risk,” Shepelsky says.
Don’t try applying for a new mortgage loan until your name has been removed from your former home loan shared with your ex-spouse.
The bottom line
A divorce can be a messy and complicated matter, especially if a mortgage is involved. But with the right legal assistance, some patience, and proper planning, you can remove this financial burden from your plate and sleep better at night knowing your finances and credit are protected.