How Divorce Can Affect Your Mortgage

If you and your spouse have purchased a house and are falling on difficult, marital times, considering the house and mortgage is one thing that will probably enter your thoughts if you are thinking about divorce. Who will get the house? What if both of you want the house? Most worrisome, is how the mortgage obligations will affect your credit score after the divorce.

No Matter What Happens…

Creditors and lenders are not obligated or bound by law to follow court orders regarding who gets to keep a house in a divorce. What that means is that if a judge awards you or your spouse the house, you both can still have your credit affected by the payments toward the house (or lack thereof). Just because the judge awards the house to you, for example, does not mean that the bank can no longer go after your spouse for payment or affect their credit if you have trouble making the mortgage on your own.

Consider These Options:

Before you and your spouse go speak with your lawyer(s) and appear before a judge to start the divorce proceedings, try to talk over the issue of the mortgage. Not only will it help alleviate some of the difficulties associated with your divorce and possible credit problems in the future, but the more issues you can agree upon and resolve privately, and without attorneys, the less expensive the divorce proceedings will be all around.

Consider selling the house

Jointly, and splitting any proceeds from the sale or, if you have to sell the home at a loss, in a down market, agree between you to split the remaining amount owed to the bank. This will have a very positive effect of removing the house entirely from the divorce proceedings.

Refinance the Home

If one of you really wants to keep the home and the other one doesn’t mind moving and walking away from the obligation, the spouse interested in the house can go to the bank or credit union and ask them to refinance the loan with just their name on it. This requires that they have sufficient credit and provable income to afford the new payments on the home by themselves and is not guaranteed just because they are currently a joint-owner of the house now. If they have trouble getting approval, consider getting a co-signer to help with the loan.

What Are a Judge’s Options?

Within the framework of law (which, regarding divorce tends to be fairly broad), a judge can do pretty much anything they want. Most commonly, they will either award the house to one spouse or the other, which means the winning spouse can stay there and pay on the home or sell it and keep all of the profit, or the judge could order the home sold and the assets (if any) split between you. Sometimes, especially where children under 18 are involved, judges have been known to allow joint dwelling of the home — that is to say that you and your spouse will still be divorced, but both of you legally allowed to stay in (and pay for) the home for the children’s sake. Either way, making the decision and having the lawyers involved is a much more costly alternative than simply discussing and settling the matter before you find yourself in court.