Getting divorced means determining who’s entitled to assets from the marriage, which for many couples includes a home. You’ll need to decide who gets the home, which can also mean determining who’s responsible for the mortgage. There are different options for handling a mortgage in divorce and the one you and your soon-to-be former spouse decide on can depend on the specifics of your situation.
A financial advisor can help you create a financial plan for your life after divorce.
What Happens to a Mortgage If You Get a Divorce?
Divorce doesn’t automatically erase the obligation to repay mortgage debt for a shared marital home. As long as both spouses’ names are on the mortgage loan, they’re equally responsible for the debt.
A divorce decree can include instructions on how that mortgage debt should be handled going forward once the marriage is officially dissolved. Both parties are legally bound to uphold the terms of the decree.
That’s true even if you obtain a quitclaim deed at some point during the divorce process. A quitclaim deed removes one party from the deed to a property. It does not, however, take their name off the mortgage.
Who Pays the Mortgage During a Divorce?
Mortgage payments must still be paid as scheduled throughout a divorce proceeding. Legally, the person whose name is on the mortgage loan is responsible for making those payments. That could be one spouse or both, depending on how the loan is structured.
It’s possible, however, that you and your spouse might work out an alternate agreement while you’re negotiating the details of the divorce. For example, if one spouse is set to take over ownership of the home once the divorce is finalized, they might agree to shoulder the mortgage payments themselves.
Doing so doesn’t remove the other spouse’s name from the mortgage (or their liability for the debt). But it does ensure that the loan continues to be paid until the divorce is finalized.
What happens if a mortgage goes unpaid while you’re working out the fine print on your divorce? If you fail to pay, then:
- Late payments can be reported on both of your credit histories if you’re each listed on the mortgage
- Both your credit scores may suffer due to late payment history
- Late fees and penalties may pile up
- Collection calls and letters may begin
- Your lender may initiate foreclosure proceedings against you if the mortgage goes unpaid for an extended period of time
For those reasons, it’s important to keep up with your mortgage payments throughout the divorce process.
Divorce Mortgage Options
Getting divorced can be stressful enough without questions about mortgage debt added to the mix. However, it’s important to tackle the issues of who gets the home and is responsible for the mortgage sooner, rather than later.
With that being said, divorcing couples have a few options for handling mortgage debt.
Refinance. Refinancing a mortgage is one way to remove a spouse from a home loan. If you own the home jointly but only one of you plans to retain ownership after the divorce, then refinancing can put the loan into your name only going forward.
You’d need to be able to qualify for a new mortgage loan in your name for that to be a viable option. That means meeting the lender’s minimum requirements for credit scores, income and debt-to-income (DTI) ratio.
In addition to removing a spouse from the mortgage, refinancing could also be an opportunity to get better loan terms. For instance, you might be able to lower the rate or switch to a shorter repayment term so you can pay the loan off faster. A cash-out refinance could also allow you to tap into your home’s equity.
Buy out. Home equity can raise additional questions when weighing your mortgage divorce options. If there’s substantial equity in the home, the spouse who’s giving up their ownership claim may ask for part of the equity in exchange.
In that case, you could do one of two things:
- Refinance into a new mortgage and withdraw cash at closing
- Refinance into a new mortgage, then take out a home equity loan after closing
Either option would mean that you wouldn’t have to come up with cash to buy out your former spouse out of pocket. Again, however, you’d need to be able to qualify for a refinance loan on your own merits. You’d also need to be able to qualify for a home equity loan or line of credit if you plan to refinance first, then withdraw equity to pay your former spouse later.
Sell. You and your spouse might agree to sell the home if neither of you wants to keep the property, or you’re both unable to qualify for a refinance loan on your own. You might also choose to sell to make the divorce equitable financially on both sides.
If you sell, the proceeds would first be used to pay off the remaining mortgage balance and any associated closing costs. At that point, whatever is left would be split between you.
A 50/50 split might be ideal if both of you contributed the same amount financially to purchasing and maintaining the home. However, you might agree to a different division if you’re trying to use the sale proceeds to balance out other assets each of you received in the divorce.
Maintain the current mortgage. If you and your former spouse are divorcing amicably, you might agree to leave the mortgage intact. Both of your names might still be on the loan but only one of you would make the payments.
That might seem like the easiest solution, but it could be problematic if you fail to keep up with the mortgage payments. If you default, you could both be subject to credit score damage and possibly foreclosure.
Keeping the mortgage in both of your names can also affect the ability of the spouse who isn’t keeping the home to get new loans. If they want to buy a home after the divorce, for instance, the existing mortgage loan would be counted in their debt-to-income ratio, which could affect their ability to qualify.
Loan assumption. Assuming a mortgage after divorce might be an option if your lender allows it. When a lender agrees to an assumption, they’re effectively allowing one spouse to take responsibility for the mortgage while removing the other borrower.
Assuming a mortgage is simpler than refinancing since you’re keeping the same loan instead of getting a new one. In terms of cost, the lender might charge a fee and you may need to pay an additional cost to have the property retitled in your name only.
However, lenders are not required to offer an option for loan assumption. If your lender doesn’t allow one borrower to assume the mortgage, you’ll have to consider one of the other solutions listed above. Talking to your financial advisor or divorce attorney can help you weigh all of the possibilities to find the best path.
Who Can Deduct Mortgage Interest After Divorce?
Aside from deciding who gets to keep the marital home and is responsible for the mortgage, you’ll also need to discuss the mortgage interest deduction. For 2023, couples can deduct interest on up to the first $750,000 of mortgage debt, or $375,000 if they’re filing separately.
If you’re divorcing, the options for assigning the mortgage interest deduction include:
- Splitting it equally
- Allowing one spouse to claim the full deduction, regardless of who gets to keep the home
- Allowing one spouse to claim the full deduction, while allowing the other spouse to claim other deductions (such as state and local property taxes, charitable contributions, etc.)
- Granting one spouse the full deduction while conferring marital assets of equal value to the other spouse
Also, keep in mind that other tax rules may apply if you’re selling the marital home and splitting the proceeds after a divorce. Homeowners are exempt from capital gains tax on the proceeds from the sale of a home, up to $500,000 for married couples filing jointly and $250,000 for single filers and couples filing separately.
Your financial advisor or accountant may be able to guide you on how to handle the tax implications of deducting mortgage interest or minimizing your tax liability when selling a jointly owned home.
Divorce is never pleasant and deciding what to do with a mortgage can add a few wrinkles to the process. Knowing the options, and the pros and cons of each one can help you find the best solution possible for both sides.
Financial Planning Tips
- Consider talking to your financial advisor about your divorce mortgage options and which one might be right for your situation. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re refinancing a mortgage after divorce, it’s important to shop around to compare the best refinance lenders. When reviewing mortgage loans, consider the fees you might pay as well as the interest rates and minimum qualification requirements. If you’re interested in a cash-out refinance or home equity loan, it’s also a good idea to calculate how much equity you might be able to access.
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