What Happens to Mortgages After Divorce?

June 17, 2015

In a divorce, one of the important decisions to make is how to divide the couple’s property. Florida uses the principle of equitable distribution, which means that the property will be divided fairly, though not necessarily equally. Some assets, such as a house, cannot be divided in half, so instead the court will award the property to one spouse and award other property to the other spouse to make up the difference. One significant issue for most couples dividing a house in divorce is the mortgage.

If a couple’s house is awarded to one spouse in a divorce, the court may order that the other spouse give a quitclaim deed to the spouse retaining ownership. A quitclaim deed will give ownership of the house solely to one spouse, but it does not affect the mortgage. But divorcing couples in Florida have several options when deciding how to deal with a mortgage.

Do Nothing

A couple may decide to keep the mortgage as is. This is not a preferable option in most cases. Often, the settlement agreement will require one spouse to make mortgage payments. But if the other spouse does not get out of the mortgage, he or she will still be responsible for it. This is true even if that spouse no longer has any ownership interest in the house. So, if the spouse keeping the house fails to make mortgage payments, the bank can come after the other spouse and the house can go into foreclosure, affecting both spouses’ credit. The property settlement cannot end a spouse’s obligation to make mortgage payments to the bank.

Sell the House

One of the easiest ways to deal with dividing the mortgage liability is to sell the house and split the proceeds, as long as there is enough equity to make it profitable. Then, no one is liable on the mortgage. If the house is underwater, the couple may be able to short sell it. But that may mean that both spouses are liable for the difference between the sale price and the balance of the mortgage.

It is a good idea to sell before the divorce is finalized. This allows the couple to know how much money they have before the property settlement is finalized and prevent future disputes about the property. Additionally, it means that neither spouse has to worry about making mortgage payments, paying taxes, or making repairs and doing upkeep until the house is sold.

The court may also order that the house be sold at a later date, for example, when a minor child reaches age eighteen, and the proceeds be split at that time. This would generally mean that both spouses remain liable on the mortgage until the house is sold.

Refinance

Another option that may be available is for one spouse to refinance the mortgage. The spouse staying in the house can buy out the other spouse, then refinance to create a new loan under which that spouse is the only one with an obligation, and only one with title to the house. The spouse who is refinancing must have sufficient income to pay the full mortgage and good enough credit for refinancing to be available.

Assume the Mortgage

Rarely, one spouse will be able to assume the mortgage. This is similar to refinancing, but no new mortgage is created. Instead, the mortgage company allows one spouse to assume the remaining mortgage balance, under the terms of the current mortgage. The other spouse is dropped from the mortgage. Assumption of the mortgage is not available in all cases.

Deciding how to deal with a mortgage upon divorce is a complex issue, but an experienced attorney can help you come to the solution that works best for you. Please contact West Palm Beach family law attorney William Wallshein for a free initial consultation.