How Are Mortgages Dealt With In a Divorce? – The Reape-Rickett Law Firm

The family home, like other assets and debts of a marriage, must be divided or awarded in a divorce. When determining how the home and accompanying mortgage is assigned, we must first establish if there is a separate property interest as well as who is on the mortgage. Once those determinations have been made, there are two common scenarios:
If the spouses agree to sell the home, and it is community property, the home can be sold, and the mortgage paid off through the sale. If there are any net proceeds from the equity of the home, the profit would be split equally, in most cases. However, this scenario can become complex if one spouse used separate property funds to contribute to the down payment of the home, or the home was purchased prior to the marriage. In those situations, once the house is sold and the mortgage debt is paid, the spouse who contributed their separate property would be reimbursed for their contribution and the parties would split the remaining proceeds equally.
If one spouse wants to keep the home, we must first determine if they can afford to buy-out their ex-spouse’s community property interest in the home and qualify to either refinance the mortgage or assume the loan. For example, if the home has $50,000 of equity, you and your spouse each have an interest of $25,000. Therefore, if you wanted to keep the family home you would need to buy-out your spouse’s interest by paying a $25,000 equalization payment and qualify for the remaining debt on your own. For some parties a buy-out isn’t feasible and the parties agree to trade-off other assets, such as retirement accounts, to equalize. Regardless of how equalization is achieved, the spouse keeping the home must be able to maintain the mortgage payments on the home either by refinancing the mortgage and qualifying independently, or assuming the existing mortgage on their own.
In either scenario, it is important that all financial resources are carefully considered, including spousal support if applicable. To understand your options, contact The Reape-Rickett Law Firm today at (888) 846-6166 or visit DivorceDigest.com