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What happens to a couple’s mortgage when spouses divorce?

Separating commingled finances is often one of the biggest challenges when married couples divorce. After years of sharing income, assets and debts, they have to divide their property and also their financial obligations.

Sometimes, there is overlap because their financial obligations have a direct connection to their high-value assets. A mortgage is a secured financial obligation that involves a lien recorded against a piece of real estate. In most cases where spouses buy a home together, they share responsibility for the mortgage. The mortgage can then become a complicating factor during their divorce negotiations.

What typically happens with a mortgage when married couples who own a home together divorce?

Refinancing is common during divorce

Most spouses who divorce have to choose between one spouse keeping the home and selling the property. In scenarios where one spouse stays in the marital home, they usually have to refinance the mortgage.

Doing so allows them to take the other spouse off of the note for the mortgage so that they are no longer responsible for the balance due. Refinancing also provides an opportunity to remove the spouse who leaves the home from the deed for the property.

Unfortunately, refinancing is much easier to suggest than it is to complete. Couples don’t necessarily time when they divorce based on interest rates. An increase in rates since purchasing or refinancing the home previously can be enough to drastically alter monthly payments on the property.

In some cases, the spouse staying in the home may not be able to qualify for a mortgage on their own without the income and credit history of the other spouse. Especially if their property division arrangements include withdrawing equity to compensate the other spouse, qualifying for the new mortgage can be a major challenge.

Some people have to find a cosigner, such as a parent, to help them qualify. Others may need to negotiate arrangements with a spouse that may allow them to delay refinancing or offset home equity with other property.

Having appropriate expectations for asset division proceedings can be beneficial for those preparing for divorce. A marital home and the mortgage that financed its purchase can become sources of conflict when people divorce if expectations aren’t managed reasonably.