What Happens to Your Mortgage if You Divorce? – By Jessica Walter
Divorce is stressful no matter the circumstances, but one of the biggest causes of stress is wondering what will happen to the house. In most cases, that house still has a mortgage on it, making its disposition even more complex.
If your house is jointly owned with your spouse, and you still owe money on a mortgage, both you and your spouse are responsible for the mortgage. That means that if the mortgage is not paid promptly, regardless of who is at fault for the non-payment, the credit ratings of both of you will be damaged.
The first thing to decide is what will happen to the house.
One of you could live in it, or you could sell it. The answer to this question will determine what happens to your mortgage following the divorce.
If you decide to sell the house, the mortgage will be satisfied when the house is sold. If you sell the house for more than the amount you owe on the mortgage, you will pay off the mortgage and split the remaining money, unless your divorce agreement outlines a different disposition of the remaining money.
Selling a house takes time, so you will need to decide how the mortgage will get paid until the house is sold. If you and your spouse each agree to pay half, make sure you both keep up with the payments to prevent damage to your credit.
Running into Difficulties
If you think you will have trouble making the mortgage payments, or if you don’t think you will be able to sell your home for more than the amount still due on the mortgage, call your bank immediately. Explain the situation in as much detail as you can. Most banks will try to work with you to find a solution that everyone can live with.
If one of you wants to stay in the house, that spouse will have to buy out the other spouse’s share, unless the divorce agreement stipulates otherwise. This doesn’t necessarily mean writing a big cheque, however. The spouse who wants to stay in the home can ‘trade’ their share of other joint assets in exchange for the house.
For example, if your house is paid up and worth £400,000 and one spouse has a retirement savings account worth £500,000, one spouse might keep the house and £50,000 of the retirement account, while the other spouse gets £450,000 from the retirement account.
If there is still a mortgage on the house, figure the value of the house less the amount of the mortgage. The spouse who keeps the house will also have to keep the mortgage and will have to show the bank that they can pay it.
Your mediator will help you work through the details of your particular situation, but just knowing what your options are will reduce the stress of a divorce.
By Jessica Walter